There is a 20 percent probability the economy will boom, 70 percent probability it will be normal, and a 10 percent probability of a recession. Stock A will return 18 percent in a boom, 11 percent in a normal economy, and lose 10 percent in a recession. Stock B will return 9 percent in boom, 7 percent in a normal economy, and 4 percent in a recession. Stock C will return 6 percent in a boom, 9 percent in a normal economy, and 13 percent in a recession. What is the expected return on a portfolio which is invested 20 percent in Stock A, 50 percent in Stock B, and 30 percent in Stock C?

Selected Answer:

8.25%

7.40%

8.33%

9.45%

9.50%

A stock had annual returns of 7.63 percent, 9.28 percent, -3.11 percent, and 15.09 percent for the past four years, respectively. What is the real average rate of return for this period if inflation averaged 2.3 percent?

Selected Answer:

4.15%

5.24%

4.81%

5.02%

5.36%