Which of the Following Statements About Robert Merton's "Trick" Is

question 12

Multiple Choice

Which of the following statements about Robert Merton's "Trick" is INCORRECT?

• A) Merton used to give the intuition of risk-neutral valuation to MIT students with an argument that he called The Trick.
• B) The Trick involves considering two worlds: the real world (where investors could be risk-averse)and a pseudo-world (where investors would be risk-neutral).
• C) The same securities: a bond (which may be viewed as a money market account),a stock,and an option trade in both worlds.
• D) The probabilities of the stock going up and down are the same in both the real world and the pseudo-world.
• E) One can easily move from the real world to the pseudo-world where things are tractable,price the option there by risk-neutral valuation,and bring that price back to the real world.

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An illicit narcotic with central nervous system stimulant effects, widely abused for its euphoric effects and potential for addiction.

Caffeine

A stimulant commonly found in coffee, tea, and other beverages, known for enhancing alertness and temporarily warding off drowsiness.

Caffeine

A stimulant found in coffee, tea, and various sodas and energy drinks, known for its ability to temporarily ward off drowsiness and restore alertness.

Stimulant

A substance that raises levels of physiological or nervous activity in the body, often used therapeutically to increase alertness or physical performance.