An Investor Owns a Security That Is Expected to Return

question 72

Multiple Choice

An investor owns a security that is expected to return 14 percent in a booming economy and 6 percent in a normal economy.The overall expected return on the security is 8.88 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)36 percent
• D)41 percent
• E)45 percent

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Definitions:

Government Securities

Financial instruments issued by a government to finance its activities, generally considered low-risk investments.

Quantity Of Money

The total amount of money available in an economy at a specific time, including both physical currency and digital balances.

Change The Tax Rate

Altering the percentage at which income, property, or sales are taxed by a governmental entity.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for the loans they take from a country's central bank or Federal Reserve.