Which of the Following Statements Is FALSE

question 3

Multiple Choice

Which of the following statements is FALSE?

• A)In both the Binomial and Black-Scholes Pricing Models,we need to know the risk neutral probability of each possible future stock price to calculate the option price.
• B)In the real world,investors are risk averse.Thus,the expected return of a typical stock includes a positive risk premium to compensate investors for risk.
• C)Because no assumption on the risk preferences of investors is necessary to calculate the option price using either the Binomial Model or the Black-Scholes formula,the models must work for any set of preferences,including risk-neutral investors.
• D)If all market participants were risk neutral,then all financial assets (including options)would have the same cost of capital-the risk-free rate of interest.

---

Definitions:

Blackface

A racially insensitive practice where performers darken their skin to imitate and stereotype African Americans, historically common in minstrel shows and other forms of entertainment.

Vaudevillian Performance

A type of entertainment popular in the early 20th century, consisting of a mixture of specialty acts such as burlesque comedy, song, and dance.

Hand-tinting

A method of manually adding color to black-and-white photographs or films, often resulting in a distinctive, artistic look.

Uniform Tinting

The process of applying a single color tone across an entire film or visual piece, often used in early cinema to convey mood or time of day.