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:

B.F. Skinner

An influential American psychologist best known for his work in behaviorism and the development of the theory of operant conditioning.

Margaret Mead

An American cultural anthropologist known for her studies and writings on cultural phenomena and her influence on the field of anthropology.

Formal Education

A structured system of learning provided by institutions like schools and universities, focusing on theoretical knowledge and practical skills development.

Working Adults

Individuals in the workforce, typically ranging from young adults to those nearing retirement, engaged in full-time or part-time employment.