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:

Union Victories

Refers to the successes and advancements achieved by the Union (Northern states) during the American Civil War, contributing to its eventual win over the Confederacy.

Conquered Areas

Regions or territories taken over by force by one geopolitical entity from another and subjected to its sovereignty and control.

Replenishing Supplies

The process of refilling resources or goods that have been used up, ensuring continuity in operations, whether in business, military, or daily life.

Ft. Pillow Massacre

A controversial event during the American Civil War in which African American Union soldiers and civilians were killed by Confederate forces after surrendering at Fort Pillow, Tennessee, in 1864.