In a Binomial Tree Created to Value an Option on a Stock,the

question 8

Multiple Choice

In a binomial tree created to value an option on a stock,the expected return on stock is

• A) Zero
• B) The return required by the market
• C) The risk-free rate
• D) It is impossible to know without more information

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Definitions:

Auditor Liability

The legal responsibility of auditors for failing to detect and report inaccuracies or fraud in the financial statements they review.

SEC

Stands for the Securities and Exchange Commission, a U.S. government agency responsible for regulating the securities markets and protecting investors.

1934 Securities Act

U.S. legislation aimed at regulating the secondary securities market, requiring disclosure of material information related to securities transactions and aimed at combating fraud and manipulation.

Negligence

A failure to behave with the level of care that someone of ordinary prudence would have exercised under the same circumstances, leading to unintended damage or harm.