Which of the Following Statements Is True

question 32

Multiple Choice

Which of the following statements is true?

• A) The Black Scholes model is the simplest to use and best used for complex situations.
• B) The binomial model does not handle options with dividend payments prior to expiration date.
• C) The Black Scholes model adequately handles the valuation of an American put.
• D) The binomial model is better for complex situations and is the simplest tool to use.
• E) The Black Scholes model is simpler to use, but for complex situations, the binomial model is the necessary tool.

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Definitions:

Allocate Resources

The process of distributing available resources among various competing needs and wants in order to achieve desired outcomes efficiently and effectively.

Efficiently

Attaining the highest level of efficiency by minimizing unnecessary effort or cost.

Externality

A financial consequence related to a product or service that results in advantages or expenses for individuals not involved in making decisions about the amount of production or consumption.

Economic Efficiency

The optimal allocation of resources where goods and services are produced at their lowest possible cost and where those goods and services align with consumers' preferences.