The Risk-Free Rate Is 4

question 4

Multiple Choice

The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of .8 to offer a rate of return of 12%, then you should ________.

• A) buy stock X because it is overpriced
• B) buy stock X because it is underpriced
• C) sell short stock X because it is overpriced
• D) sell short stock X because it is underpriced

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Definitions:

Cured

The complete resolution of a disease or condition, with no remaining symptoms or potential for relapse.

Psychological Functioning

Encompasses the mental processes and behavioral actions by which individuals relate to their environment and themselves.

Quality of Life

A multidimensional concept that usually includes subjective evaluations of both positive and negative aspects of life.

Physical Functioning

A measure of an individual's ability to perform physical activities in daily life, often used to assess health status or physical fitness.