You Are Considering Purchasing Stock S

question 47

Multiple Choice

You are considering purchasing stock S. This stock has an expected return of 8% if the economy booms and 3% if the economy goes into a recessionary period. The overall expected rate of return on this stock will:

• A) be equal to one-half of 8% if there is a 50% chance of an economic boom.
• B) vary inversely with the growth of the economy.
• C) increase as the probability of a recession increases.
• D) be equal to 75% of 8% if there is a 75% chance of a boom economy.
• E) increase as the probability of a boom economy increases.

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Definitions:

°C

a unit of temperature on the Celsius scale, a measure relative to 0°C for the freezing point and 100°C for the boiling point of water at sea level.

Atm

An abbreviation for atmosphere, a unit of pressure equal to the pressure exerted by the Earth's atmosphere at sea level.

Volume

The amount of space an object or substance occupies, measured in liters, cubic meters, or other units of capacity.

°C

Degrees Celsius, a unit of temperature on the metric scale.