Which of the following is NOT true?
A) Risk-neutral valuation provides prices that are only correct in a world where 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 produces a valuation that is correct in all situations not just those where investors are risk-neutral.The expected return on all investments is assumed to be the risk-free rate and the risk-free rate is used to discount expected payoffs.

Which of the Following Is NOT True