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Suppose that risk-averse investors expect the return on a stock to be per annum and the risk-free rate is r per annum. In a binomial

Suppose that risk-averse investors expect the return on a stock to be per annum and the risk-free rate is r per annum. In a binomial tree, if < r, the real probability of an increase in the stock price is lower than the risk-neutral probability of the increase.

(a) True

(b) False

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