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Which of the following variables used in determining a stock's intrinsic value can be known with the greatest level of confidence?

A) future earnings
B) expected return on the market
C) the risk free rate of return
D) future dividends

1 Answer

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Final answer:

The risk-free rate of return can be known with the greatest confidence when determining a stock's intrinsic value as it is based on current yields of government securities, unlike variable future earnings or dividends which are predictions.

Step-by-step explanation:

In determining a stock's intrinsic value, the variable that can be known with the greatest level of confidence is C) the risk-free rate of return. This is because the risk-free rate is typically represented by the yield on government securities, which is known at the time of investment and does not fluctuate as significantly as the other variables. Future earnings, expected returns on the market, and future dividends, on the other hand, are much harder to predict accurately as they are based on expectations about future events and can vary due to a multitude of factors.

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User Oliver M Grech
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