Which of the Following Is Not Sufficient for a Pricing

question 10

Multiple Choice

Which of the following is not sufficient for a pricing tree for risky bonds to be free of arbitrage?

• A) The existence of a risk-neutral pricing probability measure.
• B) The existence of a general equilibrium in the asset markets.
• C) All normalized (discounted) assets are martingales.
• D) On the tree, the gross risk-free one-period return is straddled by the return when rates move up and when rates move down.

---

Definitions:

Broadbent's Filter Theory

A theory suggesting that information is filtered through a selective attention mechanism that allows only a portion of sensory inputs to reach consciousness.

Sensory Modalities

The ways through which living organisms perceive their environment, such as sight, smell, touch, taste, and hearing.

Memory Tasks

Activities or exercises designed to test or improve the ability to recall information or experiences.

Sensory Registers

Memory systems that temporarily hold information received from the senses, allowing initial processing before further cognitive analysis.