Which of the following summarizes the classical theory of asset prices? I. An asset price equals the present value of expected income from the asset. II. The interest rate in the present value formula is the safe interest rate.
III) The risk premium is zero.
A)I only II
B)only III
C)only
D)II and III

Question

Quizplus · Accepted Answer

The classical theory of asset prices is summarized by statement I and II, which state that an asset price equals the present value of expected income from the asset and that the interest rate in the present value formula is the safe interest rate. Statement III is false, as it states that the risk premium is zero, whereas in reality, investors demand a premium for taking on greater risk. Therefore, the best choice is A, which includes statement I and II and excludes statement III.

Which of the Following Summarizes the Classical Theory of Asset