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:

Previous Experiences

Past events or encounters that an individual has gone through, which can influence their behavior, perception, and decisions in the future.

Adaptation-Level Phenomenon

The human tendency to judge various stimuli and situations relative to those we have previously experienced, leading to a normalization of experiences and diminishing response over time.

Standards Of Judgment

Criteria or benchmarks used to evaluate or assess the quality, importance, or value of something.

Self-Control Energy

The concept that an individual has a limited reservoir of self-control that can be depleted through use over time, affecting the ability to regulate behaviors and emotions.