a. Describe how the Black-Scholes Call option formula can be used to make an inference about the variance of the return on a stock. b . Explain how the earnings and dividends approaches to stock valuation are equivalent.

Assuming that the stock price follows a geometric Brownian motion, is it a Markov process when the coefficient is not constant?

1. How does the binomial model account of volatility in the stock?

What does beta represent? Multiple Choice Beta is a measure of covariance standardized by the variance of the market. This adjusts the risk of the firm to be relative to the risk of the market. Beta is the extra income earned on an investment that cannot be explained by systematic risk or unsystematic risk. Beta is related to the return on risk-free assets. Beta is always positive or O, it cannot be negative because stock prices cannot be negative.