You recently purchased a stock that is expected to earn 12 percent in a booming economy,9 percent in a normal economy,and lose 15 percent in a recessionary economy.The probabilities of a boom,a normal economy,and a recession are 18,75,and 7 percent,respectively.What is your expected rate of return on this stock?
A)7.93%
B)7.45%
C)7.86%
D)7.75%
E)7.68%

Question

Quizplus · Accepted Answer

E(r)= 0.18(0.12)+ 0.75(0.09)+ 0.07(−0.15)= 0.0786,or 7.86%

You Recently Purchased a Stock That Is Expected to Earn