The Black-Scholes formula is notable because it does not require us to know ________.
A) the expected return on a stock
B) the risk-free rate
C) the volatility of the stock
D) the dividend rate on the stock

Question

Quizplus · Accepted Answer

The Black-Scholes formula, used for pricing European call and put options, does not require knowing the expected return on a stock. It instead focuses on factors like the stock's current price, the exercise price of the option, the time to expiration, the risk-free rate, and the volatility of the stock's returns.

The Black-Scholes Formula Is Notable Because It Does Not Require