CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

According to the binomial model, the value of a call option is NOT determined by ______.

A. the probabilities of the up and down moves
B. the volatility of the underlying
C. the risk-free rate
Correct Answer: A

The actual probabilities of up and down moves do not matter. The binomial model specifies two possible prices for the underlying asset one period later, and enables the construction of a risk-free hedge consisting of the option and the underlying.

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