The common stock of Manchester & Moore is expected to earn 13 percent in a recession,6 percent in a normal economy,and lose 4 percent in a booming economy.The probability of a boom is 5 percent while the probability of a recession is 45 percent.What is the expected rate of return on this stock?
A)8.52 percent
B)8.74 percent
C)8.65 percent
D)9.05 percent
E)9.28 percent

Question

Quizplus · Accepted Answer

E(r) = (0.45 × 0.13) + (0.50 × 0.06) + (0.05 × - 0.04) = 8.65 percent

The Common Stock of Manchester & Moore Is Expected to Earn