ECONOMICS
RISK AND RETURN
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A stock is expected to return 11% in a normal economy, 19% if the economy booms, and lose 8% if the economy moves into a recessionary period. Economists predict a 65% chance of a normal economy, a 25% chance of a boom, and a 10% chance of a recession. What is the expected return on the stock?
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11.10%
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12.06%
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11.98%
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11.23%
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Explanation:
Detailed explanation-1: -A stock is expected to return 11% in a normal economy, 19% if the economy booms, and lose 8% if the economy moves into a recessionary period. The economists predict a 65% chance of a normal economy, a 25% chance of a boom, and a 10% chance of a recession.
Detailed explanation-2: -What is the expected return for a stock that has a beta of 1.5, if the risk-free rate is 6% and the market rate of return is 11%? The Answer is 13.5%.
There is 1 question to complete.