The Returns on the Common Stock of Cycles, Inc

question 261

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:

Supply-Side Economists

Economists who believe that reducing taxes and decreasing regulation will stimulate economic growth by encouraging investment, production, and employment.

Marginal Tax Rates

The rate at which the next dollar of taxable income will be taxed, reflecting the percentage of additional income that is paid in tax.

Rational Expectations Theory

An economic idea suggesting that individuals make predictions about the future based on all available information and past experiences, thereby impacting markets and the economy.

Fiscal Policies

Fiscal policies are government strategies involving taxation and spending decisions designed to influence economic conditions, including growth, inflation, and unemployment.