The Following Is NOT an Assumption Underlying the Binomial Option

question 2

Multiple Choice

The following is NOT an assumption underlying the binomial option pricing model:

• A) no market frictions
• B) no credit risk
• C) competitive and well-functioning markets
• D) no interest rate uncertainty
• E) stock prices follow a lognormal process

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Definitions:

Cash Flows From Operations

The amount of cash generated by a company’s normal business operations.