The Risk-Free Rate Is 5% and the Expected Return on a Stock

question 8

Multiple Choice

The risk-free rate is 5% and the expected return on a stock is 12%. A derivative can be valued by: choose one)

• A) Assuming that the expected growth rate for the stock price is 13% and discounting 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 13% and discounting the expected payoff at 5%

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