Which of the Following Statements Is False

question 32

Multiple Choice

Which of the following statements is false?

• A) A replicating portfolio is a portfolio of other securities that has exactly the same value in one period as the option.
• B) By using the Law of One Price, we are able to solve for the price of the option as long as we know the probabilities of the states in the binomial tree.
• C) The binomial tree contains all the information we currently know: the value of the stock, bond, and call options in each state in one period, as well as the price of the stock and bond today.
• D) The idea that you can replicate the option payoff by dynamically trading in a portfolio of the underlying stock and a risk-free bond was one of the most important contributions of the original Black-Scholes paper. Today, this kind of replication strategy is called a dynamic trading strategy.

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Definitions:

Decedent's Death

A term referring to the time of death of an individual, often used in legal, tax, and financial contexts.

Savings Account

A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.

Sacred Church

A religious institution considered holy or divine by its followers.

Interest Earned

Revenue generated from interest-bearing accounts or investments, reflecting the amount of interest income accumulated over a period.