Question: (10 points, 5 points each) True or False. State whether the last sentence is true or false. No explanations are necessary; the grade will be

(10 points, 5 points each) True or False. State whether the

(10 points, 5 points each) True or False. State whether the last sentence is true or false. No explanations are necessary; the grade will be based on the answer only. (a) Risk-neutral pricing only works when people don't care about risk. For this reason, risk-neutral pricing only gives an approximation of actual prices. (b) Consider a binomial model where the risk-free rate is 10%. If the price of a digital up option is $0.70, the price of a digital down option must be $0.40. (10 points, 5 points each) True or False. State whether the last sentence is true or false. No explanations are necessary; the grade will be based on the answer only. (a) Risk-neutral pricing only works when people don't care about risk. For this reason, risk-neutral pricing only gives an approximation of actual prices. (b) Consider a binomial model where the risk-free rate is 10%. If the price of a digital up option is $0.70, the price of a digital down option must be $0.40

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