A Stock Is Expected to Return 10% When the Risk-Free

question 13

Multiple Choice

A stock is expected to return 10% when the risk-free rate is 4%.What is the correct discount rate to use for the expected payoff on an option in the real world?

• A) 4%
• B) 10%
• C) More than 10%
• D) It could be more or less than 10%

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Definitions:

Probability

The quantification of the probability that an event will happen, represented as a number ranging from 0 to 1.

Crashing

A project management technique used to reduce the time for project completion through the increase of resources on critical tasks.

CPM Network

Critical Path Method Network; a project management tool that outlines every task necessary to complete a project and the relationships between those tasks, helping identify the longest stretch of dependent activities and the time necessary to complete them.

Project Cost

The total financial resources required to complete a project, encompassing all types of expenses.