Question

In: Finance

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?

Solutions

Expert Solution

Information provided:

The rate of return in a boom economy=15%

The rate of return in a normal economy= 74%

The rate of return in a recessionary economy= 11%

Probability for a boom economy= 11%

Probability for a normal economy= 10%

Probability for a recessionary economy= 5%

Expected rate of return= 0.11*0.15 + 0.10*0.74 + 0.05*-0.11

                                     = 0.0165 + 0.0740 – 0.0055

                                     = 0.0850*100

                                     = 8.50%.

Therefore, the expected rate of return of the stock is 8.50%.

In case of any query, kindly comment on the solution.

jeff jeffy answered 9 months ago
Next > < Previous

Related Solutions

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
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...
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?
RTF stock is expected to return 11 percent in a normal economy and lose 15 percent...
RTF stock is expected to return 11 percent in a normal economy and lose 15 percent in recession. The probability of a recession is 33 percent while the probability of a booming economy is zero percent. What is the variance of the returns on RTF stock?
RTF stock is expected to return 11 percent in a normal economy and lose 15 percent...
RTF stock is expected to return 11 percent in a normal economy and lose 15 percent in recession. The probability of a recession is 33 percent while the probability of a booming economy is zero percent. What is the variance of the returns on RTF stock?
You own stock with an overall expected return of 18.32 percent. The economy is expected to...
You own stock with an overall expected return of 18.32 percent. The economy is expected to either boom or be normal. There's a 65 percent chance the economy will boom. If the economy booms, the stock is expected to return 23 percent. What's the expected return on the stock if the economy is normal? A. 8.51% B. 9.63% C. 11.84% D. 10.25% Please show work.
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%
The economy has a 10 percent chance of booming, 60 percent chance of being normal, and...
The economy has a 10 percent chance of booming, 60 percent chance of being normal, and 30 percent chance of going into a recession. A stock is expected to return 16 percent in a boom, 11 percent in a normal, and lose 8 percent in a recession. The return on real estate is 10% in a normal and a boom, and -10% in a recession. What is the correlation between the return of the stock and the return of real...
Stock A is expected to return 12 percent in a normal economy and lose 7 percent...
Stock A is expected to return 12 percent in a normal economy and lose 7 percent in a recession. Stock B is expected to return 8 percent in a normal economy and 2 percent in a recession. The probability of the economy being normal is 80 percent and the probability of a recession is 20 percent. What is the covariance of these two securities? Please SHOW Work Not JUST ExCell Thank You
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT