You recently purchased a stock that is expected to earn 16% in a booming economy, 12% in a normal economy, and lose 8% in a recessionary economy. There is a 20% probability of a boom, a 70% chance of a normal economy, and a 10% chance of a recession. What is your expected rate of return on this stock?

Multiple Choice

• 8.60%

• 12.40%

• 6.67%

• 6.00%

• 10.80%

2. The higher the standard deviation, the less certain the rate of return in any one given year. true or false