No-arbitrage price of any financial assets is
A) the future value of all future cash flows received from the assets.
B) the accounting book value of all future cash flows received from the assets.
C) the present value of all future cash flows received from the assets.
D) the market value of all future cash flows received from the assets.

Question

Quizplus · Accepted Answer

The no-arbitrage price of any financial asset is the present value of all future cash flows received from the asset. This is because the concept of no-arbitrage implies that an investor should not be able to earn a riskless profit by exploiting mispricings in the market. Therefore, the price of an asset should reflect the discounted value of its future cash flows, adjusted for any risk. Choices A, B, and D do not capture the concept of discounting future cash flows to the present value, making option C the best choice.

No-Arbitrage Price of Any Financial Assets Is