Attempt All a) You recently purchased a stock that is expected to eam 12 % in a booming economy, 8 % in a normal economy and lose 5% in a recessionary economy. There is a 15% probability of a boom, a 75 % chance of a normal economy, and a 10% chance of a recession. What is your expected rate of return on this stock? [5 Marks ] b) Shares are currently selling for $4.4625. At the beginning of the year you bought them for $4.25 and during the year a dividend of 21.25 cents per share was paid. What is the return? [ 5 Marks ] c) Which one of the following stocks is correctly priced if the risk-free rate of return is 2.5 percent and the market risk premium is 8 percent? ( 5 Marks STOCK BETA EXPECTED RETURN Page 6 of 6 8.2% 1.42 13.9% 1.23 11.8% 1.31 12.6% 94 9.7%