Assume you are determining the risk-neutral probabilities of a price increase and decrease.In this situation,you know the expected return on the asset must equal the:
A)sponsoring firm's cost of capital.
B)risk-free rate.
C)market rate of return.
D)annual inflation rate.
E)CAPM rate of return.

Question

Quizplus · Accepted Answer

The expected return on an asset calculated using risk-neutral probabilities should equal the risk-free rate, which represents the return an investor can expect to earn on a completely risk-free investment.

Assume You Are Determining the Risk-Neutral Probabilities of a Price