The Rate of Return on the Common Stock of Lancaster

question 5

Multiple Choice

The rate of return on the common stock of Lancaster Woolens is expected to be 21 percent in a boom economy,11 percent in a normal economy,and only 3 percent in a recessionary economy.The probabilities of these economic states are 10 percent for a boom,70 percent for a normal economy,and 20 percent for a recession.What is the variance of the returns on this common stock?

• A)0.002150
• B)0.002606
• C)0.002244
• D)0.002359
• E)0.002421

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