Question

Bernard Companies stock has an expected return of 10.75 percent. The stock is expected to return 13.5 percent in a normal economy and 19.6 percent in a boom. The probabilities of a recession, normal economy, and a boom are 5 percent, 80 percent, and 15 percent, respectively. What is the expected return if the economy is in a recession? Multiple Choice −42.77 percent −63.76 percent −59.80 percent −36.72 percent −68.20 percent

Crabby Shores stock is expected to return 15.7 percent in a booming economy, 9.8 percent in a normal economy, and 2.3 percent in a recession. The probabilities of an economic boom, normal state, or recession are 15 percent, 73 percent, and 12 percent, respectively. What is the expected rate of return on this stock? Multiple Choice 10.74 percent 10.61 percent 10.07 percent 9.79 percent 8.68 percent

Assume the economy has an 6 percent chance of booming, am 8 percent chance of being recessionary, and being normal the remainder of the time. A stock is expected to return 22.5 percent in a boom, 11.5 percent in a normal economy, and −8 percent in a recession. What is the expected rate of return on this stock? Multiple Choice 10.38 percent 5.5 percent 9.15 percent 10.60 percent 6.69 percent

Answer 1

10.75% Stock expected return Less: Weighted return Normal Weighted return Boom 10.80% =13.5%*80% 2.94% = 19.6%*15% Weighted return recession -Probability of recession -2.99% 5.00% Recession return -59.80%

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