What Is the Expected Return on This Stock Given the Following

question 65

Multiple Choice

What is the expected return on this stock given the following information?
$\begin{array}{lcr}\text { State of the Economy } & \text { Probability } & E(R) \\\text { Boom } & .7& 12 \% \\\text { Recession } & .3 & 8\%\end{array}$

• A)6.00% .
• B)2.00%
• C)0%
• D)2.00%.
• E)6.00%

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Definitions:

Economic Profits

Profits after subtracting both explicit and implicit costs from total revenue, representing earnings that exceed the opportunity cost of all resources.

Monopolistic Competition

A market structure in which many companies sell products that are similar but not identical, allowing for competition on factors other than price.

Long Run

A period in economics where all factors of production and costs are variable.

Zero Economic Profit

A situation where a firm's total revenues exactly equal its total costs, including opportunity costs. It is also referred to as normal profit.