Which One of the Following Statements Is Correct Concerning the Expected

question 111

Multiple Choice

Which one of the following statements is correct concerning the expected rate of return on an individual stock given various states of the economy?

• A) The expected return is a geometric average where the probabilities of the economic states are used as the exponential powers.
• B) The expected return is an arithmetic average of the individual returns for each state of the economy.
• C) The expected return is a weighted average where the probabilities of the economic states are used as the weights.
• D) The expected return is equal to the summation of the values computed by dividing the expected return for each economic state by the probability of the state.
• E) As long as the total probabilities of the economic states equal 100%, then the expected return on the stock is a geometric average of the expected returns for each economic statE.

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Definitions:

Net Income

The total profit of a company after all operating expenses, taxes, and interest are deducted from total revenue.

Normal Balance

The side of an account (debit or credit) that increases. For assets and expenses, it's usually the debit side, and for liabilities, equity, and revenue, it's typically the credit side.

Owner's Capital Account

An equity account representing the total investment of the owner in the business, including initial contributions and subsequent earnings, minus any withdrawals.

Asset Account

Accounts used in accounting to track the value of economic resources owned or controlled by an entity which can provide future benefits.