# This flashcard is just one of a free flashcard set. See all flashcards!

214

14.Which of the following is NOT true in a risk-neutral world?

A.The expected return on a call option is independent of its strike price

B.Investors expect higher returns to compensate for higher risk

C.The expected return on a stock is the risk-free rate

D.The discount rate used for the expected payoff on an option is the risk-free rate

A.The expected return on a call option is independent of its strike price

B.Investors expect higher returns to compensate for higher risk

C.The expected return on a stock is the risk-free rate

D.The discount rate used for the expected payoff on an option is the risk-free rate

Answer: B

In a risk-neutral world investors require an expected return equal to the risk-free rate and the discount rate that should be used for all expected payoffs is the risk-free rate.

In a risk-neutral world investors require an expected return equal to the risk-free rate and the discount rate that should be used for all expected payoffs is the risk-free rate.

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015