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:

Arbitrage

The practice of buying and selling assets in different markets or forms to profit from differing prices for the same asset.

Predatory Pricing

A strategy where a firm sets prices below cost with the intention of driving competitors out of the market, and then possibly raising prices to higher levels once competition is reduced.

Mark-up Pricing

A pricing strategy where a fixed percentage is added to the cost of producing a good or service to determine its selling price.

Direct Discrimination

Actions or policies that explicitly treat an individual or group less favorably than others based on prohibited grounds such as race, gender, or age.