"If equivalent investment opportunities trade simultaneously in different competitive markets, then they must trade for the same price in both markets." What do we call the above statement?
A) The Net Present Value rule
B) The Law of One Price
C) The Valuation Principle
D) The Time Value of Money

Question

Quizplus · Accepted Answer

The statement described in the question is the Law of One Price. This principle suggests that in efficient markets, equivalent assets or investment opportunities should have the same price. This makes sense because profit opportunities will arise if the same asset can be purchased for different prices in different markets, which leads to market competition and drives prices towards equilibrium. The Net Present Value rule is a decision-making principle that evaluates investment decisions based on their discounted cash flow. The Valuation Principle is the concept that the value of a good or service is determined by its utility to consumers. The Time Value of Money is the idea that money available now is worth more than the same amount in the future due to its potential to earn interest or be invested in profitable opportunities.

"If Equivalent Investment Opportunities Trade Simultaneously in Different Competitive Markets