Question
Let us assume that the expected return on a stock is 12% and the risk-free rate is 6%. An option on the stock can be
Let us assume that the expected return on a stock is 12% and the risk-free rate is 6%. An option on the stock can be valued by
A. | assuming that the expected growth rate for the stock price is 12% and discounting the expected payoff of the option at 6%. | |
B. | assuming that the expected growth rate for the stock price is 12% and discounting the expected payoff of the option at 12%. | |
C. | assuming that the expected growth rate for the stock price is 6% and discounting the expected payoff of the option at 6%. | |
D. | assuming that the expected growth rate for the stock price is 6% and discounting the expected payoff of the option at 12%. |
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