The common stock of Low Cost Foods is expected to earn 12percent in a booming...

The common stock of Low Cost Foods is expected to earn 12 percent in a booming economy, earn 8 percent in a normal economy, and lose 6 percent in a recession. The probability of a boom is 15 percent, the probability of a normal economy is 80 percent, and the chance of a recession is 5 percent. What is the expected rate of return on this stock?

Expert Solution

We know that,

Expected Return = Wb*Rb + Wn*Rn + Wr*Rr

= 0.15*12 + 0.8*8 + 0.05*(-0.06)

= 7.9 % Answer

jeff jeffy answered 2 years ago

17. You recently purchased a stock that is expected to earn 12.6 percent in a booming...

17. You recently purchased a stock that is expected to earn 12.6 percent in a booming economy and 5.2 percent in a recessionary economy. Each economic state is equally likely to occur. What is your expected rate of return on this stock? Select one: a. 5.2 percent b. 8.9 percent c. 12.6 percent d. 7.4 percent

Terry owns a stock that is expected to earn 8.7 percent in a booming economy, 9.2...

Terry owns a stock that is expected to earn 8.7 percent in a booming economy, 9.2 percent in a normal economy, and 12.6 percent in a recessionary economy. Each economic state is equally likely to occur. What is his expected rate of return on this stock? 9.98 percent 11.90 percent 11.01 percent 10.38 percent 10.17 percent

You recently purchased a stock that is expected to earn 11 percent in a booming economy,...

You recently purchased a stock that is expected to earn 11 percent in a booming economy, 10 percent in a normal economy and lose 5 percent in a recessionary economy. There is a 15 percent probability of a boom, a 74 percent chance of a normal economy. What is your expected rate of return on this stock?

Hubbard’s Pet Foods is financed 90% by common stock and 10% by bonds. The expected return...

Hubbard’s Pet Foods is financed 90% by common stock and 10% by bonds. The expected return on the common stock is 13.9%, and the rate of interest on the bonds is 7.3%. Assume that the bonds are default-free and that there are no taxes. Now assume that Hubbard’s issues more debt and uses the proceeds to retire equity. The new financing mix is 63% equity and 37% debt. Given the initial capital structure, calculate the expected return on assets. (Do...

Cost of Equity The earnings, dividends, and common stock price of Shelby Inc. are expected to...

Cost of Equity The earnings, dividends, and common stock price of Shelby Inc. are expected to grow at 6% per year in the future. Shelby's common stock sells for $21.00 per share, its last dividend was $2.00, and the company will pay a dividend of $2.12 at the end of the current year. Using the discounted cash flow approach, what is its cost of equity? Round your answer to two decimal places. % If the firm's beta is 1.5, the...

A. A stock is expected to earn 29 percent in a boom economy and 14 percent...

A. A stock is expected to earn 29 percent in a boom economy and 14 percent in a normal economy. There is a 42 percent chance the economy will boom and a 58.0 percent chance the economy will be normal. What is the standard deviation of these returns? B. A portfolio consists of 35 percent Stock A, 54 percent Stock B, and 11 percent Stock C. What is the portfolio expected return given the following: State of Economy Probability of...

cost of common stock equity.Ross Textiles wishes to measure its cost of common stock equity. The...

cost of common stock equity.Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $35.41 . The firm expects to pay a $3.25 dividend at the end of the year (2016). The dividends for the past 5 years are shown in the following table: Year Dividend per share 2015 2.97 2014 2.65 2013 2.44 2012 2.14 2011 2.06 After underpricing and flotation costs, the firm expects to net $32.93 per share on...

Common Stock, Preferred Stock, and IPO 1. What is the maximum return you can earn by...

Common Stock, Preferred Stock, and IPO 1. What is the maximum return you can earn by purchasing common? What is the minimum return you can make? 2. What are the maximum and minimum returns on a preferred stock investment? 3. What is an IPO and who gets the money raised in an IPO? 4. Who gets paid when you buy common shares of stock online? 5. Rank common stock, preferred stock, and IPOs in order of risk. Explain your decision....

BPJ stock is expected to earn 14.8 percent in a recession, 6.3 percent in a normal...

BPJ stock is expected to earn 14.8 percent in a recession, 6.3 percent in a normal economy, and lose 4.7 percent in a booming economy. The probability of a boom is 20 percent while the probability of a normal economy is 55 percent. What is the expected rate of return on this stock? A. 6.23% B. 6.72% C. 6.81% D. 7.60% E. 8.11%

Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity....

Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $64.19. The firm just recently paid a dividend of $4.04. The firm has been increasing dividends regularly. Five years ago, the dividend was just $2.99. After underpricing and flotation costs, the firm expects to net $58.41 per share on a new issue. A. Determine average annual dividend growth rate over the past 5 years. Using that growth...

Question