Economically rational buyers and sellers use their assessment of an asset's risk and return to determine its value. Relative to this concept, which of the following is true?

Question

Quizplus · Accepted Answer

Economically rational buyers will only pay up to the maximum price they are willing to pay for an asset, which represents the asset's value to them. Similarly, sellers will only sell the asset above the minimum price they are willing to receive, which represents the asset's value to them. Therefore, to a buyer, the asset's value represents the maximum price they would pay to acquire it, while to a seller, the asset's value represents the minimum price they would accept for it. Option A is incorrect as a buyer is willing to pay more than its value in situations like auctions because of demand, while option B is incorrect as while the seller is willing to sell the asset for a minimum price, the value represents the minimum they would accept for it. Option D is incorrect because even though the interaction of buyers and sellers can result in a value that differs from the stock's true value, this statement does not relate to the concept of how buyers and sellers determine an asset's value based on their assessment of its risk and return.

Economically Rational Buyers and Sellers Use Their Assessment of an Asset's