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%

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Definitions:

Task Interdependencies

The extent to which tasks and processes within an organization rely on each other to be completed successfully.

Role Ambiguities

Uncertainties faced by employees regarding their job roles, expectations, and responsibilities within an organization.

Substantive Conflict

A disagreement over goals, resources, rewards, policies, or procedures that has a significant impact on the tasks or outcomes.

Emotional Conflict

A situation where a person experiences mixed feelings or emotions about a decision, situation, or person, leading to internal turmoil or struggle.