The stock of Blue Water Tours, Inc. is expected to return 16.00 percent in a boo

Question

The stock of Blue Water Tours, Inc. is expected to return 16.00 percent in a boom economy, 11.00 percent in a normal economy, and lose 10.00 percent in a recessionary economy. What is the expected rate of return on this stock if there is a 8.00 percent chance the economy booms, and an 83.00 percent chance the economy will be normal?

8.34 percent

9.51 percent

9.99 percent

9.26 percent

A stock is expected to earn 36 percent in a boom economy, 20.00 percent in a normal economy, and lose 20 percent in a recessionary economy. There is a 16 percent chance the economy will boom and a 60 percent chance the economy will be normal. What is the expected risk premium for this stock if the risk-free rate is expected to be 5.40 percent?

7.27 percent

6.16 percent

6.60 percent

7.56 percent

Stock

Number of Shares

Price per Share

A

500

13

B

200

  28

C

800

  26

D

400

  15

53.47 percent

51.09 percent

56.48 percent

50.28 percent

A portfolio consists of 30 percent Stock A, 60 percent Stock B, and 10 percent Stock C. What is the portfolio expected return given the following:

State of Economy

Probability of State of Economy

Stock A Returns

Stock B Returns

Stock C Returns

Normal

0.60

22%

   15%

   38%

Recession

0.40

The stock of Blue Water Tours, Inc. is expected to return 16.00 percent in a boom economy, 11.00 percent in a normal economy, and lose 10.00 percent in a recessionary economy. What is the expected rate of return on this stock if there is a 8.00 percent chance the economy booms, and an 83.00 percent chance the economy will be normal?

Explanation / Answer

Answer:-1:

Calculation of expected return on the stock of Blue Water Tours, Inc.:

Formula :

Expected return = (Return 1* Probability 1 ) + (Return 2* Probability 2 )+

(Return 3* Probability 3 )

= (16%*8%) + (11%*83%) + (-10%*(100-83-8)%)

= 9.51%

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.