ECONOMICS
RISK AND RETURN
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

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?

11.10%


12.06%


11.98%


11.23%

Explanation:
Detailed explanation1: 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 explanation2: What is the expected return for a stock that has a beta of 1.5, if the riskfree rate is 6% and the market rate of return is 11%? The Answer is 13.5%.
There is 1 question to complete.