A Necessary and Sufficient Condition to Rule Out Arbitrage Profits $\gt$

question 2

Multiple Choice

A necessary and sufficient condition to rule out arbitrage profits in the multiperiod binomial tree is that the following must hold:

• A) "up factor \(\gt\)down factor \(\gt\)dollar return"
• B) "up factor \(\gt\)dollar return \(\gt\)down factor"
• C) the pseudo-probability for an up movement must equal that for the down movement
• D) the pseudo-probabilities for an up movement at any node of the tree must be the same for all bond/money market account pairs
• E) None of these answers are correct.

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Definitions:

Corporate Veil

A legal concept that separates the identity of a corporation from its shareholders, protecting them from being personally liable for the company's debts or legal obligations.

De Facto Corporation

A business that operates as a corporation without formal legal acknowledgment but is treated as such for some purposes.

Corporation's Bylaws

The written rules for conduct of a corporation, detailing the rights and obligations of the directors, officers, and shareholders.

Perpetrate A Fraud

The act of intentionally deceiving someone or a group in order to gain an unfair or illegal advantage, often financial.