1. You recently purchased a stock that is expected to earn 28 percent in a booming economy, 17 percent in a normal economy, and lose 2 percent in a recessionary economy. There is a 27 percent probability of a boom, a 65 percent chance of a normal economy, and a 8 percent chance of a recession. What is your expected rate of return on this stock?
15.00 percent
2.33 percent
14.33 percent
9.22 percent
18.45 percent
2. A stock has a beta of 1.45, the expected return on the market is 18 percent, and the risk-free rate is 6.3 percent. What must the expected return on this stock be?
24.43%
32.4%
22.1%
23.27%
24.2%
3. Bill Smith, age 25, took out $50,000 of straight-life insurance. His annual premium was $356.50. At the end of 20 years, the cash value of his policy is: (Use the tables in the handbook)
A. $825 B. $13,250 C. $1,423 D. $1,681 E. None of the above