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

question 5

Multiple Choice

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

• 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:

Sample Size

The number of observations or data points used in a statistical analysis.

Confidence Interval

A range of values, derived from the sample data, that is believed, with a certain probability, to contain the true population parameter.

Population Mean

The average of all the individuals or items in a population, calculated as the sum divided by the total number in the population.

Degrees Of Freedom

The number of independent values or quantities which can vary in the analysis without violating any constraints.