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?

Select one:

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%