The Expected Return on a Stock Computed Using Economic Probabilities

question 26

Multiple Choice

The expected return on a stock computed using economic probabilities is:

• A) guaranteed to equal the actual average return on the stock for the next five years.
• B) guaranteed to be the minimal rate of return on the stock over the next two years.
• C) guaranteed to equal the actual return for the immediate twelve month period.
• D) a mathematical expectation based on a weighted average and not an actual anticipated outcome.
• E) the actual return you should anticipate as long as the economic forecast remains constant.

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Definitions:

Simple Interest

Interest earned or paid on the original principal amount alone, without compounding.

Buyer

A person or entity that purchases goods or services.

T-bill

Treasury bill, a short-term government security with a maturity of less than one year, used to finance the national debt.

Simple Interest

The calculation of interest paid or received over a certain period that is based only on the principal amount, not including interest on interest.