Assume the Risk-Free Rate Is 4

question 55

Multiple Choice

Assume the risk-free rate is 4.5% and the expected return on the market is 11%.You anticipate Stock XYZ to sell for $28 at the end of next year and pay a dividend of $2.The stock is currently selling for $26.50 with a beta of 1.2.You currently hold stock XYZ in a well-diversified portfolio.Assuming you have money to invest,you should:

• A) Buy stock XYZ.
• B) Sell stock XYZ.
• C) Do nothing because it is properly valued.
• D) Invest your money in the risk-free rate of return.
• E) Both b and d above.

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Definitions:

Oligopoly

A market structure in which a few large firms dominate the industry, influencing the price and production of goods.

Industry Market Structure

The organizational characteristics of a market, defined by the level of competition, number of firms, and the nature of product differentiation.

Market Price

The actual price at which any commodity is traded in the market, determined by supply and demand.

Price Elastic

A term possibly intending to describe price elasticity, which measures how much the quantity demanded of a good responds to a change in its price.