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We often observe two stocks as having the same price at a particular time, but having...

We often observe two stocks as having the same price at a particular time, but having different prices before and after that time. It violates the Law of One Price.

True

False

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Answer #1

False.

Law of One price states that the price of an identical asset or goods will be same in any market irrespect of location, time, buyers/ sellers etc. It assumes the market to be frictionless. It only states about the price of identical assets/goods in different market and dosen't state any relationship between the price to two different assets/goods.

Therefore, two stocks may have the same price at a particular time, but different prices before and after that time as per Law of one price as it dosen't state about movement of price to one stock in respect with other stock. Hence, no voilation of Law of one price.

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