Derivatives Q47

47David is studying the law of one price. Which of the following statements is most likely to be correct?

A
The law of one price explains that two assets producing equal future cash flows would sell for equal prices.
B
The law of one price describes how a risk-free profit can be earned without capital commitments.
C
The true fundamental value of the asset can be described by the law of one price.

Option : A
Explanation : The law of one price occurs when participants in the market engage in arbitrage activities so that identical assets sell for the same price in different markets. B refers to arbitrage and C does not account for identical assets.

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