Question $6(1$ point$)$

Which of the following statements best describes the difference between real$-$world

and risk$-$neutral pricing in finance?

In risk neutral pricing; the preference of investors towards risk does not affect

asset prices. The expected return on all assets is assumed to be the risk$-$free

rate.

Risk$-$neutral pricing is based on historical market data, while real$-$world pricing

considers future expectations and uncertainties.

Risk$-$neutral pricing adjusts for inflation and interest rate changes, whereas real$-$

world pricing focuses solely on nominal values and ignores interest rate

fluctuations.