A stock is expected to return 9% in a normal economy, 11% if the economy booms, and lose 5% if the economy moves into a recessionary period. Economists predict a 58% chance of a normal economy, a 22% chance of a boom, and a 20% chance of a recession. The expected return on the stock is %.

A stock is expected to return 9% in a normal economy, 11% if the economy booms, and lose 5% if the economy moves into a recessionary period. Economists predict a 58% chance of a normal economy, a 22% chance of a boom, and a 20% chance of a recession. The expected return on the stock is %.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 17MC: Now assume that the stock is currently selling at $30.29. What is its expected rate of return?

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Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

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100%

A stock is expected to return 9% in a normal economy, 11% if the economy booms, and lose 5% if the economy moves into a recessionary period. Economists predict a 58%
chance of a normal economy, a 22% chance of a boom, and a 20% chance of a recession. The expected return on the stock is
%.

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