Explain the arbitrage process, Financial Accounting

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Explain the arbitrage process

Response to the following questions:

1. Explain, verbally, how MM use the arbitrage process to prove the validity of Proposition I. Also, list the major MM assumptions and explain why each of these assumptions is necessary in the arbitrage proof.

2. Your firm's CEO has just learned about options and how your firm's equity can be viewed as an option. Why might he want to increase the riskiness of the firm and why might the bondholders not be very happy about this?

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Financial Accounting: Explain the arbitrage process

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Financial Accounting: Explain the arbitrage process

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