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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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