The law of one price states that
A)Similar but not identical assets will trade in the same market.
B)Similar but not identical portfolios will have the same risk.
C)Portfolios with different cashflows cannot have the same price.
D)Portfolios with identical cashflows will have the same price.

Question

Quizplus · Accepted Answer

The law of one price states that portfolios with identical cashflows will have the same price. This concept is the foundation of the theory of arbitrage, which involves taking advantage of differences in prices of identical assets or portfolios to earn risk-free profits. Therefore, option D is the best choice as it correctly defines the law of one price. The other options are not accurate descriptions of this financial concept.

The Law of One Price States That