Important Assumptions Justifying the Black-Scholes Formula Include

question 13

Multiple Choice

Important assumptions justifying the Black-Scholes formula include:
I.The price of the underlying asset follows a lognormal random walk.
II.Investors can adjust their hedge ratio continuously and at no cost.
III.The risk-free rate is known.
IV.The underlying asset does not pay dividends.

• A)I only
• B)I and II only
• C)I, II, III, and IV
• D)III and IV only

---

Definitions:

Formal Operational Thinking

A stage in cognitive development, characterized by the ability to think abstractly, logically, and systematically.

Masculinization

The process by which an organism develops male physical characteristics or displays male behaviors, often influenced by hormonal changes.

Feminization

The process of acquiring female characteristics or qualities, often referencing hormonal or social transitions.

Adulthood

The life stage characterized by full physical development and maturity, including the assumption of responsibilities and roles typical for grown individuals.