The Risk-Free Rate Is 5

question 54

Multiple Choice

The risk-free rate is 5%. The expected market rate of return is 11%. If you expect stock X with a beta of 2.1 to offer a rate of return of 15%, 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.
• E) None of the options, as the stock is fairly priced.

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Definitions:

Premises

Statements or propositions that are assumed to be true and serve as the basis for a conclusion in an argument.

Dependent Premises

Premises in an argument that rely on each other for their validity; the truth of one is dependent on the other.

Pudding Recipe

A set of instructions for preparing pudding, including ingredients and steps involved in its cooking or assembly.

Cedar Point

An amusement park located in Sandusky, Ohio, known for its large collection of roller coasters.