In His Book, an Inquiry into the Nature and Causes

question 178

Multiple Choice

In his book, An Inquiry into the Nature and Causes of the Wealth of Nations, economist Adam Smith argued that individuals

• A)always tend to act in an altruistic manner.
• B)always consider the impact of their actions on the welfare of others.
• C)are motivated by self-interest.
• D)are generally not concerned with economic questions.

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Definitions:

Arbitrage Opportunity

A situation where a trader can make a profit without risk by simultaneously buying and selling the same or equivalent assets in different markets to exploit price differences.

Risk-free Rate

A theoretical return on an investment with zero risk of financial loss, often represented by government bonds.

Alpha

Alpha is a financial metric indicating the performance of an investment relative to a benchmark index, representing the extra value that a portfolio manager adds or subtracts from a fund's return.

Expected Rate of Return

The projected percentage return on an investment over a given period, factoring in all known variables.