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

---

Definitions:

Level Component

A part or element that does not change or vary within a certain framework or system, maintaining a consistent state or position.

Historical Demand

Past data on the quantity of a product or service that consumers bought over a specific time period, used for forecasting future demand.

Qualitative Forecasting Methods

Techniques that use expert judgment and subjective inputs to forecast outcomes, rather than relying solely on historical numerical data.

Causal Forecasting Methods

Predictive techniques that assume a cause-and-effect relationship between variables to estimate future outcomes.