Which of the Following Statements About the Binomial Option Pricing

question 54

Multiple Choice

Which of the following statements about the binomial option pricing model is not always true?

• A)it can capture the effect of early exercise
• B)it can accommodate a large number of possible stock prices at expiration
• C)it reflects the effects of the stock price,exercise price,risk-free rate,volatility and time to expiration
• D)it gives the price at which the option will trade in the market.
• E)none of the above

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Definitions:

Acid Test Ratio

A liquidity ratio; those assets that are most easily converted to cash are divided by current liabilities to indicate ability to pay off short-term debt. Also called quick ratio.

Quick Assets

Assets that can be quickly converted into cash without significantly affecting their value, such as stocks and receivables.

Current Liabilities

Current liabilities are a company's debts or obligations that are due to be paid within a year, including accounts payable, short-term loans, and accrued expenses.

Debt to Equity Ratio

A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.