You Have Been Given the Following Forecasts for the Economy

question 71

Multiple Choice

You have been given the following forecasts for the economy and Stock A: (1) the probability of having a recession next year is 30.0%, a normal economy is 55.0%, and an expansion is 15.0%, and (2) the price of Stock A will be $9 if the economy is in recession, $15 if the economy is normal, and $18 if the economy is in expansion.What is the ex ante variance of Stock A's returns if it is currently selling for $12?

• A)7.1719%²
• B)26.7804%²
• C)29.4219%²
• D)54.2419%²

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Definitions:

Interdependent

A state in which two or more entities rely on each other for support, survival, or functioning.

Innate

Describes qualities or abilities present from birth, not acquired later.

Universal

A concept or condition that applies to all members of a given category or thing, without exceptions.

Linguistic-Relativity Hypothesis

A theory suggesting that the structure of a language affects its speaker's worldview or cognition.