Which of the Following Statements Is FALSE

question 42

Multiple Choice

Which of the following statements is FALSE?

• A)A replicating portfolio is a portfolio of other securities that has exactly the same value in one period as the option.
• B)By using the Law of One Price,we are able to solve for the price of the option as long as we know the probabilities of the states in the binomial tree.
• C)The binomial tree contains all the information we currently know: the value of the stock,bond,and call options in each state in one period,as well as the price of the stock and bond today.
• D)The idea that you can replicate the option payoff by dynamically trading in a portfolio of the underlying stock and a risk-free bond was one of the most important contributions of the original Black-Scholes paper.Today,this kind of replication strategy is called a dynamic trading strategy.

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Definitions:

Alpha-Fetoprotein (AFP)

A protein produced by the liver of a fetus, which can be measured in the mother's blood or amniotic fluid for certain prenatal tests.

Ovulation

The releasing of an ovum from an ovary.

Childbearing Years

The age span, typically between late teens and late 30s, during which a woman has the biological capability to conceive and bear children.

Fetus

A developing mammal or human in the uterus from the end of the embryonic stage (about 8 weeks after conception) until birth.