Consider the Following Probability Distribution for Stocks C and D

question 46

Multiple Choice

Consider the following probability distribution for stocks C and D: $\begin{array}{cccc}\underline{\text { State }} &\underline{ \text { Probability }} &\underline{ \text { Return on Stock C} } &\underline{ \text { Return on Stock D} } \\1 & 0.30 & 7 \% & -9 \% \\2 & 0.50 & 11 \% & 14 \% \\3 & 0.20 & -16 \% & 26 \%\end{array}$

-The expected rates of return of stocks C and D are _____ and _____,respectively.

• A)4.4%; 9.5%
• B)9.5%; 4.4%
• C)6.3%; 8.7%
• D)8.7%; 6.2%
• E)none of the above

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Definitions:

Substitutes

Products or services that can replace each other in use, where an increase in the price of one leads to an increase in demand for the other.

Complements

Goods that are often used together, where the increase in the consumption of one leads to an increase in the consumption of the other.

Demand Curve

A graph showing the relationship between the price of a good or service and the quantity demanded, typically downward sloping.

Consumer Incomes

The total earnings or financial gains received by individuals or households, affecting their buying power and consumption patterns.