An Investor Owns a Security That Is Expected to Return

question 18

Multiple Choice

An investor owns a security that is expected to return 10 percent in a booming economy and 3 percent in a normal economy.The overall expected return on the security is 5.45 percent.Given there are only two states of the economy,what is the probability that the economy will boom?

• A) 28 percent
• B) 33 percent
• C) 35 percent
• D) 41 percent
• E) 45 percent

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Definitions:

Positive Mood

A psychological state characterized by feelings of joy, satisfaction, and increased energy.

Decision Making

The act of making choices by identifying a decision, gathering information, and assessing alternative resolutions.

Sunk Costs

Expenses that have already been incurred and cannot be recovered, which should not influence future decisions.

Group Discussion

A form of collaborative verbal interaction among individuals aimed at sharing information, solving problems, or making decisions.