Which of the Following Statements About the Volatility Is Not

question 26

Multiple Choice

Which of the following statements about the volatility is not true?

• A)the implied volatility often differs across options with different exercise prices
• B)the implied volatility equals the historical volatility if the option is correctly priced
• C)the implied volatility is determined by trial and error
• D)the implied volatility is nearly linearly related to the option price
• E)none of the above

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Definitions:

Maturity

The date on which a debt instrument (such as a bond) is due to be repaid in full.

EAR

The Effective Annual Rate; a measure of the annual return on an investment or loan that takes into account the effect of compounding interest.

Credit Cards

Credit cards are financial tools issued by banks or financial institutions, allowing cardholders to borrow funds within a pre-approved credit limit for purchases or cash advances.

Nominal Rate

The interest rate before adjustments for inflation, as opposed to the real rate which is adjusted for inflation.