Identify a Problem Associated with Using the Black-Scholes Model to Value

question 86

Multiple Choice

Identify a problem associated with using the Black-Scholes model to value bond options.

• A)It assumes short-term interest rates are constant.
• B)It assumes that commissions are charged.
• C)It assumes fluctuating variance of returns on the underlying asset.
• D)It assumes that the variance of bond prices is constant over time.

---

Definitions:

Forging Process

A manufacturing process involving the shaping of metal using localized compressive forces.

Inside Diameter

The measurement of the interior width of a hollow object from one inner wall directly across to the opposite inner wall.

Capability Index

A statistical measure of a process's ability to produce output within preset specification limits.

Daily Proportion

The fraction or percentage of a particular event or characteristic occurring within a single day.