The Returns on the Common Stock of Cycles, Inc

question 310

Multiple Choice

The returns on the common stock of Cycles, Inc. are quite cyclical. In a boom economy, the stock is expected to return 27% in comparison to 13% in a normal economy and a negative 20% in a recessionary period. The probability of a recession is 30% while the probability of a boom is 5%. The remainder of the time the economy will be at normal levels. What is the standard deviation of the returns on this stock?

• A) 11.40%
• B) 14.79%
• C) 15.87%
• D) 18.27%
• E) 22.46%

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Definitions:

GEO

Short for Geostationary Earth Orbit, a circular orbit 35,786 kilometers above the Earth's equator where a satellite's orbital period matches the Earth's rotation, appearing stationary to an observer on Earth.

LEO

Stands for Low Earth Orbit, a satellite's orbit relatively close to Earth's surface, typically at altitudes less than 2,000 kilometers, used for telecommunications, military, and observation purposes.

MEO

Medium Earth Orbit, referring to satellites that orbit the earth at altitudes in a range typically between 2,000 and 35,786 kilometers, used for communications, navigation, and earth observation.

VEO

An acronym that requires specification for an accurate definition as it could stand for various concepts depending on the context.