The Market Rate of Return Is 12% and the Risk-Free

question 209

True/False

The market rate of return is 12% and the risk-free rate of return is 4%. A stock that has 5% more risk than the market has an actual return of 12%. Given this information, the stock is underpriced.

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Definitions:

Ordinary General Annuity

A series of equal payment or receipt amounts that occur at evenly spaced intervals over a fixed period, with payments made at the end of each period.

Present Value

The present value of a sum of money or series of cash inflows expected in the future, calculated using a particular rate of return.

Ordinary General Annuity

An annuity where payments are made at the end of each period, such as monthly or annually, over a specified length of time.

Present Value

The contemporary worth of an expected future sum of money or flow of cash payments, accounting for a specific rate of return.