Terry Owns a Stock That Is Expected to Earn 8

question 70

Multiple Choice

Terry owns a stock that is expected to earn 8.7 percent in a booming economy,9.2 percent in a normal economy,and 12.6 percent in a recessionary economy.Each economic state is equally likely to occur.What is his expected rate of return on this stock?

• A)10.38 percent
• B)11.90 percent
• C)10.17 percent
• D)9.98 percent
• E)11.01 percent

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Definitions:

Back-end Ratio

A debt-to-income ratio that calculates the percentage of a person's gross income going toward paying all debt obligations, including mortgage and auto loans.

Expenses

Costs incurred or money spent on goods and services.

Escrow Account

An escrow account is a financial arrangement where funds or assets are held by a third party on behalf of two other parties in the process of completing a transaction.

Semi-annual

Refers to events or processes that occur or are carried out twice a year.