You Are Considering Purchasing Stock S

question 28

Multiple Choice

You are considering purchasing stock S. This stock has an expected return of 8% if the economy booms and 3% if the economy goes into a recessionary period. The overall expected rate of return
On this stock will:

• A) Be equal to one-half of 8% if there is a 50% chance of an economic boom.
• B) Vary inversely with the growth of the economy.
• C) Increase as the probability of a recession increases.
• D) Be equal to 75% of 8% if there is a 75% chance of a boom economy.
• E) Increase as the probability of a boom economy increases.

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Definitions:

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