Rosita Owns a Stock with an Overall Expected Return of 14.40

question 34

Multiple Choice

Rosita owns a stock with an overall expected return of 14.40 percent. The economy is expected to either boom or be normal. There is a 48 percent chance the economy will boom. If the economy booms, this stock is expected to return 15 percent. What is the expected return on the stock if the economy is normal?

• A) 12.00 percent
• B) 12.83 percent
• C) 13.15 percent
• D) 13.85 percent
• E) 14.40 percent

---

Definitions:

Adjusting Entry

An accounting record made to update the book value of an asset or to correct or allocate income and expenses to the appropriate period.

Prepaid Asset

Expenses paid in advance for future benefits, such as insurance or rent, recognized as assets until they are utilized.

Prepaid Subscriptions

Payments made in advance for subscription-based services or products, recognized as assets until the services or products are received.

Calendar-Year

A one-year period that begins on January 1 and ends on December 31, used by businesses for accounting and tax purposes.