Yeadon Construction's stock is expected to earn 5 percent in a weak economy, 12 percent in a normal economy, 20 percent in a strong economy, 30 percent in a booming economy, and lose 20 percent in a recession. The probability of a recession is 5 percent, the probability of weak economy is 15 percent, the probability of a normal economy is 48 percent, the probablity of a strong economy is 27 percent, and the probability of a booming economy is 5 percent. What is the expected rate of return on this stock? O A. 15.17% O B. 16.72% O C. 11.66% O D. 13.41% O E. 12.41%
Yeadon Construction's stock is expected to earn 5 percent in a weak economy, 12 percent in a normal economy, 20 percent in a strong economy, 30 percent in a booming economy, and lose 20 percent in a recession. The probability of a recession is 5 percent, the probability of weak economy is 15 percent, the probability of a normal economy is 48 percent, the probablity of a strong economy is 27 percent, and the probability of a booming economy is 5 percent. What is the expected rate of return on this stock? O A. 15.17% O B. 16.72% O C. 11.66% O D. 13.41% O E. 12.41%
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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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
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Transcribed Image Text:Yeadon Construction's stock is expected to earn 5 percent in a weak economy, 12 percent in a normal economy, 20 percent in a strong
economy, 30 percent in a booming economy, and lose 20 percent in a recession. The probability of a recession is 5 percent, the
probability of weak economy is 15 percent, the probability of a normal economy is 48 percent, the probablity of a strong economy is
27 percent, and the probability of a booming economy is 5 percent. What is the expected rate of return on this stock?
O A. 15.17%
O B. 16.72%
O C. 11.66%
O D. 13.41%
O E. 12.41%
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