Stock A has a beta of 1.7 and has the same reward-to-risk ratio as stock B. Stock B has a beta of .8 and an expected return of 12 percent. What is the expected return on stock A if the risk-free rate is 4.5 percent?

Select one:

a. 12.89 percent

b. 20.44 percent

c. 14.46 percent

d. 16.67 percent

e. 18.97 percent

The expected rate of return on Delaware Shores, Inc. stock is based on three possible states of the economy. These states are boom, normal, and recession which have probabilities of occurrence of 20 percent, 75 percent, and 5 percent, respectively. Which one of the following statements is correct concerning the variance of the returns on this stock?

Select one:

a. The variance must be positive provided that each state of the economy produces a different expected rate of return.

b. The variance must decrease if the probability of occurrence for a boom increases.

c. The variance can be positive, zero, or negative, depending on the expected rate of return assigned to each economic state.

d. The variance will remain constant as long as the sum of the economic probabilities is 100 percent.

e. The variance is independent of the economic probabilities of occurrence.