The Risk-Free Rate Is 5% and the Expected Return on a Non-Dividend-Paying

question 14

Multiple Choice

The risk-free rate is 5% and the expected return on a non-dividend-paying stock is 12%.Which of the following is a way of valuing a derivative?

• A) Assume that the expected growth rate for the stock price is 17% and discount the expected payoff at 12%
• B) Assuming that the expected growth rate for the stock price is 5% and discounting the expected payoff at 12%
• C) Assuming that the expected growth rate for the stock price is 5% and discounting the expected payoff at 5%
• D) Assuming that the expected growth rate for the stock price is 12% and discounting the expected payoff at 5%

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Definitions:

Low Frequencies

Sounds or signals that fall at the lower end of the auditory range, typically below 250 Hz, often associated with bass tones or vibrations.

Frequency

The number of occurrences of a repeating event per unit of time.

Hertz

The unit of frequency in the International System of Units (SI), representing one cycle per second.

Decibels

A unit of measurement that represents the intensity of sound, quantifying sound pressure level commonly used in acoustics.