An Investor Owns a Security That Is Expected to Return

question 53

Multiple Choice

An investor owns a security that is expected to return 12% in a booming economy and 4% in a normal economy. The overall expected return on the security is 7.80%. Given there are only two states of the economy, what is the probability that the economy will boom?

• A)35.0%
• B)37.5%
• C)40.0%
• D)45.0%
• E)47.5%

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Definitions:

Sales Tax

A tax imposed by government authorities on the sale of goods and services, paid for by the consumer at the point of purchase.

Sales Tax

A tax levied by a government on the sale of goods and services, usually calculated as a percentage of the purchase price.

Sales Tax

A government-imposed tax on the sale of goods and services, collected by retailers at the point of sale.

Tax Rate

The percentage at which an individual or corporation is taxed by the government on income or property.