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Determining the expected rate of return on stock

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Reference no: EM133056326

You recently purchased a stock that is expected to earn 17 percent in a booming economy, 12 percent in a normal economy, and lose 8 percent in a recessionary economy. There is a 20 percent probability of a boom, a 70 percent chance of a normal economy, and a 10 percent chance of a recession. What is your expected rate of return on this stock?

a. 11.00 percent
b. 6.67 percent
c. 8.60 percent
d. 10.80 percent
e. 12.60 percent

DELL stock has a beta of 1.4. The risk-free rate of return is 5% and the market rate of return is 12%. What is the risk premium on this stock?

a. 6.45 percent
b. 8.77 percent
c. 9.80 percent
d. 14.37 percent
e. 16.95 percent

Reference no: EM133056326

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