You recently purchased a stock that is expected to earn 30 percent in a booming economy, 9 percent in a normal economy

60.

You recently purchased a stock that is expected to earn 30 percent in a booming economy, 9 percent in a normal economy, and lose 33 percent in a recessionary economy. There is a 5 percent probability of a boom and a 75 percent chance of a normal economy. What is your expected rate of return on this stock?    A.  -3.40 percent B.  -2.25 percent C.  1.65 percent D.  2.60 percent E.  3.50 percent E(r) = (0.05 × 0.30) + (0.75 × 0.09) + (0.20 × -0.33) = 1.65 percent

61.

The common stock of Manchester & Moore is expected to earn 13 percent in a recession, 6 percent in a normal economy, and lose 4 percent in a booming economy. The probability of a boom is 5 percent while the probability of a recession is 45 percent. What is the expected rate of return on this stock?    A.  8.52 percent B.  8.74 percent C.  8.65 percent D.  9.05 percent E.  9.28 percent E(r) = (0.45 × 0.13) + (0.50 × 0.06) + (0.05 × - 0.04) = 8.65 percent

62.

You are comparing stock A to stock B. Given the following information, what is the difference in the expected returns of these two securities?        A.  -0.85 percent B.  2.70 percent C.  3.05 percent D.  13.45 percent E.  13.55 percent E(r)A = (0.45 × 0.12) + (0.55 × -0.22) = -6.70 percent E(r)B = (0.45 × 0.17) + (0.55 × -0.31) = -9.40 percent Difference = -6.70 percent - (-9.40 percent) = 2.70 percent