Use the Table for the Question(s)below

question 37

Essay

Use the table for the question(s)below.
-Suppose that security C had a risk premium of 30%,describe what arbitrage opportunity exists and how you would exploit it.

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Definitions:

Marginal Propensity

Measures the portion of additional income that an individual or entity spends on consuming goods rather than saving.

Multiplier

The ratio of the change in an endogenous variable to the change in an exogenous variable it is dependent on, often used in the context of fiscal policy’s effect on the economy.

MPC

Stands for Marginal Propensity to Consume, indicating the proportion of additional income that is spent on consumption.

Tax Cut

A reduction in the amount of taxes that individuals or companies are required to pay to the government.