A Stock Had Returns of 7 Percent,15 Percent,and -1 Percent

question 20

Multiple Choice

A stock had returns of 7 percent,15 percent,and -1 percent for the past three years.Based on these returns,what is the probability that this stock will earn at least 15 percent in any one given year?

• A)8.00%
• B)2.28%
• C)15.87%
• D)4.56%
• E)31.74%

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Definitions:

DFL

Degree of Financial Leverage, a ratio that measures the sensitivity of a company’s earnings per share to fluctuations in its operating income, based on its capital structure.

EBIT

Earnings Before Interest and Taxes, a measure of a firm's profit that includes all incomes and expenses except interest and income tax expenses.

EPS

Earnings Per Share (EPS) is a company's net profit divided by the number of common shares outstanding, indicating the company's profitability on a per-share basis.

Leverage

The use of borrowed capital or financial instruments to increase the potential return of an investment.