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:

Acid Test Ratio

A financial metric that measures a company's ability to pay off its current liabilities with its quick assets (cash, marketable securities, and receivables).

Temporary Investments

Investments not intended to be held for a long term and may include stocks or bonds, classified for easy liquidation.

Debts to Total Assets Ratio

A financial metric indicating the proportion of a company's assets that are financed through debt, assessing financial leverage.

Debt to Stockholders' Equity

A financial ratio that measures the proportion of a company's debt to the equity held by its shareholders.