- CFA Exams
- CFA Level I Exam
- Study Session 16. Derivatives
- Reading 49. Basics of Derivative Pricing and Valuation
- Subject 1. The Principle of Arbitrage
CFA Practice Question
The expected payoff of the derivative can be discounted at the ______.
A. risk-free rate
B. risk premium rate
C. risk-free rate + risk premium
Explanation: This is because the investor is assumed to be risk-neutral when pricing a derivative. Derivative pricing is sometimes called risk-neutral pricing.
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