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) Expected income is the best possible forecast based only on past information.
III) The interest rate in the present value formula is less than the safe interest rate plus a risk premium.
A)I only
B)II only
C)III only
D)I and II

Question

Quizplus · Accepted Answer

The classical theory of asset prices states that an asset's price is determined by the present value of expected future income from the asset, which aligns with statement I. Statement II is related to the efficient market hypothesis, not classical theory, and statement III incorrectly describes the interest rate in the present value formula.

Which of the Following Summarizes the Classical Theory of Asset