Chapter $13$ Practice Test Question $03$

A stock is expected to earn $26$ percent in a boom economy, $15\mathrm{.}00$ percent in a normal

economy, and lose $30$ percent in a recessionary economy. There is a $21$ percent chance

the economy will boom and a $67$ percent chance the economy will be normal. What is

the expected risk premium for this stock if the risk$-$free rate is expected to be $4\mathrm{.}40$

percent?

Multiple Choice

$6\mathrm{.}11$ percent

$6\mathrm{.}55$ percent

$7\mathrm{.}51$ percent

$7\mathrm{.}22$ percent