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:

Intrinsic Locus Control

The belief that individuals can control events that affect them because of traits or abilities they possess.

Extrinsic Locus Control

A belief that external forces or situations beyond one's personal control determine life events and outcomes.

Self-Handicapping Tendencies

Behaviors or attitudes people adopt to create excuses for themselves, so they can avoid self-blame in case of failure.

Symbolic Interactionism

The perspective that people use their understanding of how others view them as the primary basis for knowing and evaluating themselves.