RTF Stock Is Expected to Return 10

question 34

Multiple Choice

RTF stock is expected to return 10.6 percent if the economy booms and only 4.2 percent if the economy goes into a recessionary period.The probability of a boom is 55 percent while the probability of a recession is 45 percent.What is the standard deviation of the returns on RTF stock?

• A)4.03 percent
• B)2.97 percent
• C)3.18 percent
• D)3.69 percent
• E)5.27 percent

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Definitions:

Required Return

Required return is the minimum expected return by investors for investing in a stock, bond, or another security, considering its risk.

Expected Market Return

The average return anticipated from an investment in the broader market, serving as a benchmark for evaluating investment performance.

Beta

A measure of a stock's volatility in comparison to the market as a whole.

Risk Premium

The additional return required by an investor for tolerating a higher level of risk compared to a safe investment.