What Is the Variance of the Returns on a Security

question 54

Multiple Choice

What is the variance of the returns on a security given the following information?
$\begin{array}{lcc}\text { State of the Economy }&\text { Probability}&\text { E(R) }\\\text { Boom } & .25 & 16\% \\\text { Normal } & .45 & 10\% \\\text { Recession } & .30 & -8 \%\end{array}$

• A)48.18%
• B)56.23%
• C)64.38%
• D)72.87%
• E)90.99%

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Definitions:

Binding Price Floor

A government-imposed price control or limit on how low a price can be charged that is above the market equilibrium price, leading to a surplus.

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Variable Ratio Schedules

A reinforcement schedule in operant conditioning where a response is reinforced after an unpredictable number of responses, leading to high and steady response rates.

Reinforcement Theory

A behavioral theory proposing that behavior is a function of its consequences, with behaviors being encouraged or discouraged through positive or negative reinforcement.