Darren Has the Option of Investing in Either Stock a or Stock

question 44

Multiple Choice

Darren has the option of investing in either Stock A or Stock B. The probability of the return of Stock A being 25% is 0.45, 14% is 0.25, and 4% is 0.30. The probability of the return of Stock B being 30% is 0.30, 9% is 0.25, and 2% is 0.30. Given the probability distributions for the two investments, what is the expected rate of return for Stock A and Stock B?

• A) 13.65%; 12.85%
• B) 14.75%; 13.75%
• C) 15.95%; 11.85%
• D) 16.80%; 11.45%
• E) 17.82%; 11.95%

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Definitions:

Quantity Demanded

The entire quantity of a product or service that buyers are prepared and capable of buying at a certain price within a defined timeframe.

Interest Rates

The cost of borrowing money or the rate of return on investments, typically expressed as a percentage of the principal.

Loanable Funds

The money available for lending and borrowing in the financial markets.

Price Floor

A government or group-imposed price control or limit on how low a price can be charged for a product, aiming to protect producers.