1. You own a stock that you think will produce a return of 11 percent in a good economy and 3 percent in a poor economy. Given the probabilities of each state of the economy occurring, you anticipate that your stock will earn 6.5 percent next year. Which one of the following terms applies to this 6.5 percent?
2. The common stock of Eddie's Engines, Inc. sells for $29.01 a share. The stock is expected to pay $3.90 per share next year. Eddie's has established a pattern of increasing their dividends by 6.0 percent annually and expects to continue doing so. What is the market rate of return on this stock?