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%

---

Definitions:

Fixed Costs

Fixed expenditures that are unaffected by changes in production or sales volumes, like rent, wages, and insurance costs.

Marginal Cost

The cost incurred by producing one additional unit of a good or service.

Crafters Fair

An event where artisans and craftspeople showcase and sell their handmade goods, often featuring a variety of unique items.

Marginal Costs

The additional cost incurred in producing one more unit of a product or service.