Which of the following is NOT true?
A) Risk-neutral valuation assumes that investors are risk neutral
B) Options can be valued based on the assumption that investors are risk neutral
C) In risk-neutral valuation the expected return on all investment assets is set equal to the risk-free rate
D) In risk-neutral valuation the risk-free rate is used to discount expected cash flows

Question

Quizplus · Accepted Answer

Risk-neutral valuation does not assume that investors are risk neutral; it is a mathematical technique used to price derivatives by assuming that all investors are indifferent to risk, allowing the use of the risk-free rate for discounting.

Which of the Following Is NOT True