The Risk-Free Rate Is 4

question 60

Multiple Choice

The risk-free rate is 4%.The expected market rate of return is 12%.If you expect stock X with a beta of 1.0 to offer a rate of return of 10%, you should

• A)buy stock X because it is overpriced.
• B)sell short stock X because it is overpriced.
• C)sell short stock X because it is underpriced.
• D)buy stock X because it is underpriced.

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Definitions:

Principal

The original sum of money borrowed in a loan, or the amount of the investment before earnings or losses.

Law

A system of rules created and enforced through social or governmental institutions to regulate behavior and ensure justice and order in society.

Independent Contractors

Workers who provide services to a business under terms specified in a contract or agreement, without being considered employees of the business.

Principal

In finance, it refers to the original sum of money borrowed in a loan or invested, excluding any interest or dividends.