You Have Given the Following Forecasts for the Economy and Stock

question 82

Multiple Choice

You have 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 standard deviation of Stock A's returns if it is currently selling for $12?

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

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Definitions:

Lost Production

The output that could have been produced but was not due to inefficiencies, disruptions, or unused capacity.

Unemployment Rate

The portion of individuals in the labor force who are unemployed and actively hunting for jobs.

Unemployed Persons

Individuals actively seeking employment but unable to find work.

Inflation

A general increase in prices and fall in the purchasing value of money over a period of time.