You recently purchased a stock that is expected to earn 15 percent in a booming economy,9 percent in a normal economy and lose 5 percent in a recessionary economy.There is a 15 percent probability of a boom,a 75 percent chance of a normal economy,and a 10 percent chance of a recession.What is your expected rate of return on this stock?
A)8.00%
B)7.45%
C)8.50%
D)7.75%
E)9.50%

Question

Quizplus · Accepted Answer

E(r)= (.15 × .15)+ (.75 × .09)+ (.10 × -.05)= .0850,or 8.50%

You Recently Purchased a Stock That Is Expected to Earn