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All main topics / Finance & Investment / Derivatives / Derivatives
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
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.
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Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015




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