The Common Stock of Taylor & Smith Is Expected to Earn

question 288

Multiple Choice

The common stock of Taylor & Smith is expected to earn 2% in a recession, 9% in a normal economy, and 13% in a booming economy. The probability of a boom is 15% while the probability of a normal economy is 75% and the chance of a recession is 10%. What is the expected rate of return on this stock?

• A) 8.35%
• B) 8.52%
• C) 8.67%
• D) 8.81%
• E) 8.90%

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Definitions:

Independent Variables

Variables in a study or experiment that are manipulated or changed by the researchers to determine their effects on the dependent variable.

Dependent Variable

In a study or experiment, this is the element that is predicted to alter due to modifications in the independent variable.

Regression Sum Of Squares

The portion of the total variance in a dependent variable that is explained by the regression model, indicating the model's explanatory power.

Coefficient Of Multiple Determination

A statistical measure that represents the proportion of the variance in the dependent variable that is predictable from the independent variables.