Which of the Following Is  NOT  an Assumption Underlying the Black-Scholes

question 49

Multiple Choice

Which of the following is  NOT  an assumption underlying the Black-Scholes option-pricing model?

• A)The risk-free rate is known and constant over the life of the option.
• B)The probability distribution of stock prices is lognormal.
• C)Investors are risk averse and will always choose the option that involves the least risk.
• D)The variability of a stock's return is constant.
• E)There are no transaction costs involved in trading options.

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