mark whether each of the following statements is true or false. (a) Consider a stock whose...
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mark whether each of the following statements is true or false. (a) Consider a stock whose required return is higher than the risk-free return. Then, in a binomial tree, the real probability of an increase in the price is higher than the risk-neutral probability of the increase. ( TRUE / FALSE ) (b) In the risk-neutral valuation, we penalize risk by changing the probability. ( TRUE / FALSE ) (c) By setting u = eoVAt and d = e-oVAt in a binomial tree, we can make the stock return required by risk-averse investors the same as the risk-free return. (TRUE / FALSE ) mark whether each of the following statements is true or false. (a) Consider a stock whose required return is higher than the risk-free return. Then, in a binomial tree, the real probability of an increase in the price is higher than the risk-neutral probability of the increase. ( TRUE / FALSE ) (b) In the risk-neutral valuation, we penalize risk by changing the probability. ( TRUE / FALSE ) (c) By setting u = eoVAt and d = e-oVAt in a binomial tree, we can make the stock return required by risk-averse investors the same as the risk-free return. (TRUE / FALSE )
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Related Book For
Statistics Unlocking the Power of Data
ISBN: 978-1118583104
1st edition
Authors: Robin H. Lock, Patti Frazer Lock, Kari Lock Morgan, Eric F. Lock, Dennis F. Lock
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