Which of the Following Is NOT True

question 14

Multiple Choice

Which of the following is NOT true?

• A) Risk-neutral valuation assumes that investors are risk neutral
• B) Options can be valued based on the assumption that investors are risk neutral
• C) In risk-neutral valuation the expected return on all investment assets is set equal to the risk-free rate
• D) In risk-neutral valuation the risk-free rate is used to discount expected cash flows

---

Definitions:

Laissez-Faire Economy

A market system in which private-party transactions are conducted without the interference of government actions like regulations, privileges, tariffs, and subsidies.

Marginal Tax Rate

The tax rate paid on the next dollar earned.

Average Tax Rate

Total amount of tax paid divided by total income.

Total Taxes

The aggregate amount of taxes collected by a government from individuals and businesses.