The Risk-Free Rate Is 2 A)925%
B)9

question 78

Multiple Choice

The risk-free rate is 2.20%. What is the expected risk premium on this stock given the following information?
$\begin{array}{lrr}\text { State of the Economy } & \text { Probability } & \text { Rate of Return if } \\& \text { of State of Economy } & \text { State occurs }\\\text { Boom } & .35 & 18 \% \\\text { Normal } & .65 & 98\end{array}$

• A)9.25%
• B)9.75%
• C)9.95%
• D)10.16%
• E)12.15%

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Definitions:

Privately Placed Bonds

Bonds that are sold directly to a small group of investors instead of being offered to the general public, often to avoid the costs and regulations of a public offering.

Warrants

Financial derivatives that give the holder the right, but not the obligation, to buy or sell a security at a specified price before a certain date.

Employee Options

A form of employee benefit that gives employees the right to purchase company stock at a set price at a future date.