A stock is projected to return 15% during economic booms, -4% during recessions and 8% otherwise. If reports indicate the probability of a boom has decreased what would happen to the stock's expected return?
A) There would be no change to the expected return.
B) The expected return would increase.
C) The expected return would decrease.
D) The expected return would increase or remain constant.
E) The expected return would decrease or remain constant.

Question

Quizplus · Accepted Answer

Since the probability of a boom has decreased, the expected return of the stock will also decrease since the highest return is projected during economic booms. Therefore, the stock's expected return would decrease.

A Stock Is Projected to Return 15% During Economic Booms