Which of the following statements is FALSE?
A)If you take the option price quoted in the market as an input and solve for the volatility,you will have an estimate of a stock's volatility known as the implied volatility.
B)The Black-Scholes formula can be used to price American or European call options on non-dividend-paying stocks.
C)We need to know the expected return on the stock to calculate the option price in the Black-Scholes Option Pricing Model.
D)We can use the Black-Scholes formula to compute the price of a European put option on a non-dividend-paying stock by using the put-call parity formula.

Question

Quizplus · Accepted Answer

The Black-Scholes Option Pricing Model does not require us to know the expected return on the stock. The model assumes that the stock follows a lognormal distribution and that the risk-free rate and volatility are the only inputs needed to calculate the option price.

Which of the Following Statements Is FALSE