A stock is expected to return 8% in a normal economy, 12% if the economy booms, and lose 6% if the economy moves into a recessionary period. Economists predict a 56% chance of anormal economy, a 24% chance of a boom, and a 20% chance of a recession. The expected return on the stock is%.

State Return Probability Normal Economy 8% 56% Boom 12% 24% Recession -6% 20% To Find:…

Answered: A stock is expected to return 8% in a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Investors require a return of 14.15 percent on Industrial Industries stock and require a return of 10.90 percent on the market. If the stock has a beta of 1.5. What is the risk-free rate of return?
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A stock is expected to return 8% in a normal economy, 12% if the economy booms, and lose 6% if the economy moves into a recessionary period. Economists predict a 56% chance of a normal economy, a 24% chance of a boom, and a 20% chance of a recession. The expected return on the stock is %.