Consider the Following Probability Distribution for Stocks C and D

question 10

Multiple Choice

Consider the following probability distribution for stocks C and D: $\begin{array}{cccc}\text { State } & \text { Probability } & \text { Return on Stock C} & \text { Return on Stock D } \\1 & 0.30 & 7\% & -9\% \\2 & 0.50 & 11\% & 14\% \\3 & 0.20 & -16\% & 26\%\end{array}$
The expected rates of return of stocks C and D are _____ and _____, respectively.

• A) 4.4%; 9.5%
• B) 9.5%; 4.4%
• C) 6.3%; 8.7%
• D) 8.7%; 6.2%
• E) None of the options are correct.

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Definitions:

Imputed Interest Rate

The calculated interest rate used in situations where no actual interest rate is specified, often for the purpose of tax calculations or financial analyses.

Residual Income

The income that remains after deducting all required costs of capital from operating income, used to assess the profitability of a department or investment.

Invested Capital

Funds committed into a company by shareholders and debtors, used for operational needs and growth investments.

Group Reward Schemes

Group reward schemes are incentive plans that reward a team or group of employees based on the collective achievement of specific goals.