You recently purchased a stock that is expected to earn 30 percent in a booming economy,9 percent in a normal economy,and lose 33 percent in a recessionary economy.There is a 5 percent probability of a boom and a 75 percent chance of a normal economy.What is your expected rate of return on this stock?
A)-3.40 percent
B)-2.25 percent
C)1.65 percent
D)2.60 percent
E)3.50 percent

Question

Quizplus · Accepted Answer

E(r) = (0.05 × 0.30) + (0.75 × 0.09) + (0.20 × -0.33) = 1.65 percent

You Recently Purchased a Stock That Is Expected to Earn