1, You recently purchased a stock that is expected to earn 11 percent in a boomi
ID: 2734434 • Letter: 1
Question
1,
You recently purchased a stock that is expected to earn 11 percent in a booming economy, 9 percent in a normal economy and lose 6 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?
6.00
7.65
7.25
8.97
2.
What are the arithmetic and geometric average returns for a stock with annual returns of 4%, 9%, -6%, and 18%?
6.25%; 5.89%
6.25%; 8.33%
8.3%; 5.89%
a.6.00
b.7.65
c.7.25
d.8.97
Explanation / Answer
1, You recently purchased a stock that is expected to earn 11 percent in a booming economy, 9 percent in a normal economy and lose 6 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? Ans) Expected rate of return on this stock Scenario Return Percentage Expected Rate of return Booming 11 0.15 1.65 Normal 9 0.74 6.66 Recessionary 6 0.11 0.66 Expected rate of retun on this stock 8.97 Expected rate of retun on this stock = 8.79% 2, What are the arithmetic and geometric average returns for a stock with annual returns of 4%, 9%, -6%, and 18%? Ans) a 6.25%; 8.33% Working Annual rate of return Scenario Average Rate of return 1 0.04 2 0.09 3 -0.06 4 0.18 0.25 Arithmetic Rate of retun = En/n Arithmetic Rate of retun = 0.25/4 6.25% Geometric Average returns 4th root of (4*9*-6*18) 8.33 appro
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.