Consider Two Securities,A & B

question 76

Multiple Choice

Consider two securities,A & B.Suppose a third security,C,has the same cash flows as A and B combined.Given this information about securities A,B,& C,which of the following statements is incorrect?

• A) If the total price of A and B is cheaper than the price of C, then we could make a profit selling A and B and buying C.
• B) Price(C) = Price(A) + Price(B)
• C) Because security C is equivalent to the portfolio of A and B, by the law of one price they must have the same price.
• D) The relationship known as value additivity says that the value of a portfolio is equal to the sum of the values of its parts.

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