1) A stock is expected to return 12% in a normal economy and -22% in a recession. There is a 55% probability of a recession. What is the expected return of this stock?

A) -8.30 Percent

B) -6.70 Percent

C) -5.40 Percent

D) 2.50 Percent

2) Which one of the following stocks is correctly priced if the risk-free rate of return is 3.2 percent and the market rate of return is 11.76 percent?

Stock Beta Expected Return

A 0.87 11.03%

B 1.09 12.50%

C 1.18 13.21%

D 1.34 15.02%

Options to choose from

A B C or D