Suppose that two industries, the pizza industry and the calzone industry, are equally risky. Rates of return on capital investments, however, are only 5% in the pizza industry and 8% in the calzone industry. Which way will capital flow—from the pizza industry to the calzone industry or from the calzone industry to the pizza industry? In this case, capital will flow from the calzone industry to the pizza industry. capital will flow from the pizza industry to the calzone industry. knowing the rates of return and risk levels of the industries is insufficient to determine the direction of any capital flow. capital will flow in neither direction.

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