The Risk-Free Rate Is 4

question 78

Multiple Choice

The risk-free rate is 4%. The expected market rate of return is 11%. If you expect CAT with a beta of 1.0 to offer a rate of return of 13%, you should

• A) buy CAT because it is overpriced.
• B) sell short CAT because it is overpriced.
• C) sell short CAT because it is underpriced.
• D) buy CAT because it is underpriced.
• E) None of the options, as CAT is fairly priced.

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Definitions:

Highest Bidder

The person or entity willing to pay the most in a bidding process, typically in auctions.

Losing Bidders

Participants in an auction who submit bids but do not win the item or contract being auctioned.

Winning Bids

The highest offers made in an auction or tender process that secure the right to purchase goods or services.

High-value

Attributes or items considered to have a significant worth or importance, either in monetary terms or in qualitative aspects such as quality or utility.