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:

L Data

Life-record data in personality research, referring to verifiable, real-world outcomes and behaviors that are used to measure personality.

Autobiographical Memories

Personal recollections of specific events or experiences from an individual's own life.

S Data

Self-report data, where individuals provide information about themselves, often used in psychological research and assessments.

Direct Observation

A method of gathering data through firsthand witnessing of behavior, rather than relying on reports or inferences.