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%

---

Definitions:

Rectifier

An apparatus that transforms AC (alternating current) into DC (direct current).

AC Input Power

AC input power refers to the electrical power supplied to a device or system in alternating current form.

DC Power

Direct Current power, a type of electrical energy that flows in one direction, commonly used in batteries and solar panels.

Constant Torque

Describes motors or load types where torque demand does not change significantly with speed.