You Recently Purchased a Stock That Is Expected to Earn

question 41

Multiple Choice

You recently purchased a stock that is expected to earn 25% in a booming economy,9% in a normal economy and lose 8% in a recessionary economy. There is a 15% probability of a boom,a 65% chance of a normal economy,and a 10% chance of a recession. What is your expected rate of return on this stock?

• A) 7.65%
• B) 8.05%
• C) 8.67%
• D) 8.83%
• E) 9.00%

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Definitions:

Operating Plan

A detailed document outlining the day-to-day operations required to run a business, including production, staffing, and inventory management processes.

Financial Planning

The process of estimating the capital required and determining its competition; it is the process of framing financial policies in relation to procurement, investment, and administration of funds of an enterprise.

Strategic

Relating to the identification of long-term or overall aims and interests and the means of achieving them, often involving planning and resource allocation.

Synergy

Notion that a combined firm is worth more than the two firms are individually.