Which statement is false regarding the one-period binomial model?

A. A call option can be synthetically replicated with the underlying and financing.
B. The hedge ratio is positive for call and put options.
C. The discount rate used in the one-period binomial model is not risk-adjusted.

Correct Answer: B

Statement A is true. The call option is equivalent to a leveraged position in the underlying.

Statement B is false. It is negative for a put option. To hedge a long put position, the arbitrageur will short sell the underlying and lend a portion of the proceeds.

Statement C is true. It is simply the risk-free interest rate.