19. In binomial trees, risk-neutral probabilities are set to generate an expected rate of return equal to
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19. In binomial trees, risk-neutral probabilities are set to generate an expected rate of return equal to the risk-free interest rate in each branch of the tree. What do you think of the following statement: “The value of an option to acquire an asset increases with the difference between the risk-free rate of interest and the weighted-average cost of capital for the asset”?
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Somshukla Chakraborty
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