Which of the Following Statements Is False

question 20

Multiple Choice

Which of the following statements is false?

• A) In both the Binomial and Black-Scholes Pricing Models, we need to know the risk-neutral probability of each possible future stock price to calculate the option price.
• B) In the real world, investors are risk averse. Thus, the expected return of a typical stock includes a positive risk premium to compensate investors for risk.
• C) Because no assumption on the risk preferences of investors is necessary to calculate the option price using either the Binomial Model or the Black-Scholes formula, the models must work for any set of preferences, including risk-neutral investors.
• D) If all market participants were risk-neutral, then all financial assets (including options) would have the same cost of capital - the risk-free rate of interest.

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Definitions:

Cooling Technology

Innovations and methods developed to remove or reduce heat from various systems or environments, such as electronic devices or buildings.

Producers

Producers are individuals or entities that create or supply goods and services for consumption in the marketplace.

Market Price

The current price at which an asset or service can be bought or sold in a particular marketplace.

Sellers

Individuals or entities that offer goods or services for sale in the market.