Empirical Tests of the Black-Scholes Option Pricing Formula

question 42

Multiple Choice

Empirical tests of the Black-Scholes option pricing formula

• A)have faced difficulties due to nonsynchronous data.
• B)suggest that when using simultaneous price data and incorporating transaction costs they conclude that the PHLX American currency options are efficiently priced.
• C)suggest that the European option-pricing model works well for pricing American currency options that are at- or out-of-the money, but does not do well in pricing in-the-money calls and puts.
• D)all of the above

Compare the cost of external equity with the cost of retained earnings and understand flotation costs.

Evaluate the conditions under which retained earnings should be considered the first source of capital.

Identify factors affecting the cost of capital and the decision to use debt or equity financing.

Understand the economic policies that contributed to the recovery from the Great Depression.