The Risk-Free Rate Is 4

question 38

Multiple Choice

The risk-free rate is 4%.The expected market rate of return is 11%.If you expect stock X with a beta of .8 to offer a rate of return of 12 percent,then you should _________.

• A) buy stock X because it is overpriced
• B) buy stock X because it is underpriced
• C) sell short stock X because it is overpriced
• D) sell short stock X because it is underpriced

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Definitions:

Executory Costs

Expenses related to the operation of a leased asset that are typically paid by the lessee, such as insurance, maintenance, and taxes.

Capitalized Costs

Expenditures that are added to the cost basis of a fixed asset on the balance sheet rather than being expensed in the period they are incurred.

Operating Expenses

Costs associated with a company's main operational activities, excluding the cost of goods sold.

Deferred Revenue

Income received by a company for goods or services yet to be delivered or performed, recognized as a liability until performance.