The Expected Rate of Return on Delaware Shores,Inc

question 72

Multiple Choice

The expected rate of return on Delaware Shores,Inc.stock is based on three possible states of the economy.These states are boom,normal,and recession which have probabilities of occurrence of 20 percent,75 percent,and 5 percent,respectively.Which one of the following statements is correct concerning the variance of the returns on this stock?

• A)The variance must decrease if the probability of occurrence for a boom increases.
• B)The variance will remain constant as long as the sum of the economic probabilities is 100 percent.
• C)The variance can be positive, zero, or negative, depending on the expected rate of return assigned to each economic state.
• D)The variance must be positive provided that each state of the economy produces a different expected rate of return.
• E)The variance is independent of the economic probabilities of occurrence.

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Definitions:

Quantity Supplied

The total amount of a product that producers are willing and able to sell at a given price in a certain time period.

Price Rises

An increase in the cost of goods or services in the market, often due to factors like inflation, increased demand, or higher production costs.

Equilibrium Price

The price at which the quantity demanded of a good equals the quantity supplied.

Quantity Demanded

Represents the total amount of a good or service that consumers are willing and able to purchase at a given price over a specific period of time.