The Risk-Free Rate Is 5% and the Expected Return on a Non-Dividend-Paying

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%