What Is the Expected Return on This Stock Given the Following

question 41

Multiple Choice

What is the expected return on this stock given the following information?
$\begin{array}{lcc}\text { State of the Economy } & \text { Probability of } & \text { Rate of Return if } \\& \text { State of Economy } & \text { state occurs }\\\text { Boom } & .15 & 22 \% \\\text { Normal } & .60 & 11 \% \\\text { Recession } & .25 & -14 \%\end{array}$

• A)6.40%
• B)6.57%
• C)8.99%
• D)13.40%
• E)14.25%

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Definitions:

Progressive Tax

A tax system where the rate increases as the taxable amount rises, aiming to reduce the tax burden on individuals who have a lower ability to pay.

Marginal Tax Rate

The rate at which the last dollar of a taxpayer’s income is taxed, indicating the percentage of tax applied to your income for each tax bracket in which you qualify.

Regressive Tax

A tax applied uniformly, taking a larger percentage of income from low-income earners than from high-income earners, considered to be inversely proportional to the taxpayer's ability to pay.

Average Tax Rate

The proportion of total income that an individual or business pays in taxes, calculated by dividing the total tax paid by the taxable income.