You Recently Purchased a Stock That Is Expected to Earn

question 6

Multiple Choice

You recently purchased a stock that is expected to earn 12 percent in a booming economy,9 percent in a normal economy,and lose 15 percent in a recessionary economy.The probabilities of a boom,a normal economy,and a recession are 18,75,and 7 percent,respectively.What is your expected rate of return on this stock?

• A)7.93%
• B)7.45%
• C)7.86%
• D)7.75%
• E)7.68%

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Definitions:

Decrease in Payable

A reduction in the amount a company owes to its suppliers or creditors, indicating payments have been made.

Loss on Sale

The financial loss incurred when the selling price of an asset is less than its carrying amount on the books.

Patent Amortization

The systematic reduction of the recorded cost of a patent over its useful life to reflect its consumption or expiration.

Operating Section

The segment of a financial statement that details revenues and expenses directly related to the core business operations.