In a binomial tree created to value an option on a stock, the expected return on stock is
A. Zero
B. The return required by the market
C. The risk-free rate
D. It is impossible to know without more information
C
The expected return on the stock on the tree is the risk-free rate. This is an application of risk-neutral valuation.
Business
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The stock of Plomb Co. falls sharply on news that its CEO has drowned in a boating accident while on vacation. This is an example of
A) liquidity risk. B) event risk. C) accidental risk. D) flotation risk.
Business
What is the key advantage and disadvantage associated with systematic sample selection? How must auditors address this disadvantage?
What will be an ideal response?
Business