You Are Considering Purchasing Stock S

question 11

Multiple Choice

You are considering purchasing Stock S.This stock has an expected return of 12 percent if the economy booms,8 percent if the economy is normal,and 3 percent if the economy goes into a recessionary period.The overall expected rate of return on this stock will:

• A)be equal to one-half of 8 percent if there is a 50 percent chance of an economic boom.
• B)vary inversely with the growth of the economy.
• C)increase as the probability of a recession increases.
• D)be independent of the probability of each economic state occurring.
• E)increase as the probability of a boom economy increases.

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Definitions:

Largest Banks

The most significant and largest banking institutions based on total assets, market capitalization, and influence in the global financial system.

M1

M1 is a category of the money supply that includes all physical currency and coin, demand deposits, traveler's checks, and other checkable deposits.

M2

An indicator of the total money available within an economy that encompasses physical currency, funds in checking accounts, and assets closely resembling cash, like savings accounts and investments in money markets.

Demand Deposits

Bank accounts that allow the holder to withdraw funds without advance notice, often used for day-to-day expenses.