Which of the following assumptions of the Black-Scholes-Merton model is not correct?
A)the stock volatility is constant
B)the stock return follows a normal distribution
C)there are no transaction costs
D)there are no taxes
E)none of the above

Question

Quizplus · Accepted Answer

The Black-Scholes-Merton model assumes that stock prices, not returns, follow a lognormal distribution.

Which of the Following Assumptions of the Black-Scholes-Merton Model Is