Assume the Risk-Free Rate Is 4

question 106

Multiple Choice

Assume the risk-free rate is 4.5% and the expected return on the market is 11%. You anticipate Stock XYZ to sell for $28 at the end of next year and pay a dividend of $2. The stock is currently selling for $26.50 with a beta of 1.2. You currently hold stock XYZ in a well-diversified portfolio. Assuming you have money to invest, what should you do?

• A) Buy stock XYZ.
• B) Sell stock XYZ.
• C) Do nothing because it is properly valued.
• D) Invest your money in the risk-free rate of return.
• E) Choices c and d.

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Definitions:

Skinner Box

An experimental apparatus developed by B.F. Skinner for studying behavioral conditioning, especially reinforcement and punishment, in animals.

Onset of Light

The moment or time when light begins or appears, often signifying the start of the day or the end of nighttime.

Conditioned Reinforcer

A stimulus that becomes reinforcing by being linked to a primary reinforcer, also referred to as a secondary reinforcer.

Primary Reinforcer

A naturally reinforcing stimulus, such as food or drink, that fulfills a basic biological need and does not require learning to become desirable.