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:

Juvenile Delinquency

Illegal or antisocial behavior by young people, typically those under the age of 18.

Delinquent Behavior

Actions that go against societal norms or laws, often used in reference to actions committed by minors that are disruptive or criminal.

Truancy

The act of staying away from school without permission, often seen as a behavioral issue needing intervention.

Antisocial Behavior

Actions that harm or lack consideration for the well-being of others, often violating social norms or laws.