Problem:
You recently purchased a stock that is expected to earn 29 percent in a booming economy, 18 percent in a normal economy, and lose 5 percent in a recessionary economy. There is a 26 percent probability of a boom, a 66 percent chance of a normal economy, and a 8 percent chance of a recession.
Required:
Question: What is your expected rate of return on this stock?
- 19.02 percent
- 15.67 percent
- 2.38 percent
- 9.51 percent
- 14.00 percent
Note: Please provide reasons to support your answer.