Ronnie Estimates That There Are Three Possible Return Outcomes for a Stock

question 57

Multiple Choice

Ronnie estimates that there are three possible return outcomes for a stock he is considering for purchase. He thinks that there is a 45% chance the economy will boom and his stock will return 25%, a 50% chance the economy will continue at its current pace and the stock will return 8%, and finally, that there is a 5% chance that the economy will falter and the expected return on his stock will be -10%. Given these probabilities and conditional expected returns, what is Ronnie's expected return on the stock he is considering for purchase?

• A) 8.00%
• B) 9.00%
• C) 10.25%
• D) 15.25%

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Definitions:

Autonomic Nervous System

A part of the peripheral nervous system that controls involuntary body functions, including heart rate, digestion, and respiratory rate.

Somatic

Relating to or affecting the body, especially as distinct from the mind or psyche.

Sympathetic

Pertaining to the sympathetic nervous system, which activates the body’s fight or flight response under stress.

Parasympathetic

A division of the autonomic nervous system responsible for conserving energy and bringing the body to a state of rest.