The Expected Rate of Return on Delaware Shores Stock Is

question 55

Multiple Choice

The expected rate of return on Delaware Shores stock is based on three possible states of the economy.These states are boom, normal, and recession which have probabilities of occurrence of 20 percent, 75 percent, and 5 percent, respectively.Which one of the following statements is correct concerning the variance of the returns on this stock?

• A)The variance must decrease if the probability of occurrence for a boom increases.
• B)The variance will remain constant as long as the sum of the economic probabilities is 100 percent.
• C)The variance can be positive, zero, or negative, depending on the expected rate of return assigned to each economic state.
• D)The variance must be positive provided that each state of the economy produces a different expected rate of return.
• E)The variance is independent of the economic probabilities of occurrence.

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Definitions:

Market-Oriented

A business approach that focuses on identifying and meeting the needs and wants of customers through product innovation and adaptation.

Economic Development

Initiatives aimed at improving the economic well-being and quality of life for a community by creating jobs, stabilizing prices, and supporting infrastructure growth.

Communist Political Ideals

A set of beliefs and values that advocate for a classless society in which all property is publicly owned and each person works and is paid according to their abilities and needs.

Corruption

Dishonest or fraudulent conduct by those in power, typically involving bribery or the misuse of authority for personal gain.