Answer the following statements true (T) or false (F)
1. Arbitrage refers to the buying and selling activities that cause an equalization of the rates of return on assets that have substantially different characteristics.
2. If investors have two identical assets that have different rates of return, the investors will sell the asset with the higher rate of return to buy the asset with the lower rate of return.
3. Arbitrage activities will make the price of the asset with the higher initial return increase, while the price of the asset with the lower return will decrease.
4. Risk in financial economics refers mainly to the chance that an investment could lose value.
5. Diversification is an investment strategy that seeks to reduce the overall risk in an investment portfolio by selecting a group of assets whose risks differ from one another.
1. FALSE
2. FALSE
3. TRUE
4. FALSE
5. TRUE
You might also like to view...
The level of output when there is full employment is called actual GDP
Indicate whether the statement is true or false
The relationship between prices and the corresponding quantities supplied is shown in a:
a. supply schedule. b. demand schedule. c. price-earnings ratio. d. production possibilities curve. e. total output schedule.