The Risk-Free Rate Is 4

question 3

Multiple Choice

The risk-free rate is 4%. The expected market rate of return is 12%. If you expect stock X with a beta of 1.0 to offer a rate of return of 10%, you should

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

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Definitions:

Self-Selected Samples

Samples where the individuals select themselves into the group, potentially leading to biased results.

Sampling Bias

The bias that occurs when a sample is not representative of the population from which it's drawn.

Self-Administered Survey

A data collection method where respondents complete the survey on their own without the aid of an interviewer.

Observational Studies

Research methods that involve observing and analyzing the natural behavior of subjects without influencing or controlling the variables.