Which of the Following Is NOT True in a Risk-Neutral

question 16

Multiple Choice

Which of the following is NOT true in a risk-neutral world?

• A) The expected return on a call option is independent of its strike price
• B) Investors expect higher returns to compensate for higher risk
• C) The expected return on a stock is the risk-free rate
• D) The discount rate used for the expected payoff on an option is the risk-free rate

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Definitions:

Propinquity Effect

The tendency for people to form friendships or romantic relationships with those whom they encounter frequently.

Physical Attractiveness

The degree to which a person's physical traits are considered aesthetically pleasing or desirable.

Socially Skilled

Refers to an individual's ability to effectively navigate and engage in various social interactions and relationships through the understanding and application of appropriate social behaviors.

Less Intelligent

A term, often considered pejorative, used to describe lower-than-average cognitive abilities or intellectual functioning.