- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 32. Valuation of Contingent Claims
- Subject 4. Black-Scholes-Merton Option Valuation Model
CFA Practice Question
The expectation implied in the BSM model is based on the ______ probability measure.
B. risk-neutral
C. risk-seeking
A. risk-averse
B. risk-neutral
C. risk-seeking
Correct Answer: B
Also, the present value function is based on the risk-free interest rate, not on the investor's required return on invested capital.
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