The Rate of Return on the Common Stock of Lancaster

question 2

Multiple Choice

The rate of return on the common stock of Lancaster Woolens is expected to be 18 percent in a boom economy, 8 percent in a normal economy, and only 2 percent in a recessionary economy. The probabilities of these economic states are 12 percent for a boom and 10 percent for a recession. What is the variance of the returns on this common stock?

• A) .001150
• B) .001306
• C) .001524
• D) .001389
• E) .001421

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Definitions:

Endothelial Cells

Cells that constitute the lining of the inner surfaces of lymphatic and blood vessels, creating a barrier between the blood or lymph flowing within the lumen and the exterior of the vessel wall.

Capillary

The smallest blood vessels in the body's circulatory system, connecting arterioles to venules and facilitating the exchange of water, oxygen, carbon dioxide, and many other nutrients and waste substances between blood and tissues.

Arteriole

Minute artery with all three tunics that transports blood to a capillary.

Venule

Minute vein, consisting of endothelium and a few scattered smooth muscles, that carries blood away from capillaries.