BPJ Stock Is Expected to Earn 14

question 43

Multiple Choice

BPJ stock is expected to earn 14.8 percent in a recession,6.3 percent in a normal economy,and lose 4.7 percent in a booming economy.The probability of a boom is 20 percent while the probability of a normal economy is 55 percent.What is the expected rate of return on this stock?

• A)6.23 percent
• B)6.72 percent
• C)6.81 percent
• D)7.60 percent
• E)8.11 percent

Identify factors that lead to market efficiency and the incentives built into market economies.

Understand the trade-off between equity and efficiency in the allocation of resources.

Comprehend how the principle of gains from trade operates within and benefits an economy.

Recognize how individual spending influences the income of others in the economy.

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Definitions:

Incremental Profit

The additional profit derived from making changes to the business operations, such as increasing production or sales.

Cash Payback Period

The duration of time it takes for an investment to generate enough cash flow to recover its initial cost.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenues, indicating profitability.

Straight-Line Rate

A method of calculating depreciation by dividing the difference between an asset's cost and its salvage value by the number of years it is expected to be used.