Assume the Risk-Free Rate Is 4

question 55

Multiple Choice

Assume the risk-free rate is 4.5% and the expected return on the market is 11%.You anticipate Stock XYZ to sell for $28 at the end of next year and pay a dividend of $2.The stock is currently selling for $26.50 with a beta of 1.2.You currently hold stock XYZ in a well-diversified portfolio.Assuming you have money to invest,you should:

• A) Buy stock XYZ.
• B) Sell stock XYZ.
• C) Do nothing because it is properly valued.
• D) Invest your money in the risk-free rate of return.
• E) Both b and d above.

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Definitions:

IQ

Intelligence quotient, a measure of a person's cognitive abilities in relation to their age group.

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Assessments designed to minimize the influence of cultural background or language on test performance, to measure intelligence or ability more accurately.

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A measure of an individual's mental ability expressed as the age at which an average individual reaches the same ability.