A. What are the geometric and arithmetic average returns for a stock with annual returns of 5 percent, 10 percent, 8 percent, and 16 percent?

a. 5.37 percent; 5.75 percent

b. 6.49 percent; 7.67 percent

c. 7.22 percent; 5.75 percent

d. 7.22 percent; 7.67 percent

e. 9.68 percent; 5.75 percent

B. You recently purchased a stock that is expected to earn 16 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. 6.00 percent

b. 6.67 percent

c. 8.60 percent

d. 10.80 percent

e. 12.40 percent

C. The returns on the common stock of Cycles, Inc. are quite cyclical. In a boom economy, the stock is expected to return 27 percent in comparison to 13 percent in a normal economy and a negative 20 percent in a recessionary period. The probability of a recession is 30 percent while the probability of a boom is 5 percent. The remainder of the time the economy will be at normal levels. What is the standard deviation of the returns on this stock?

a. 11.40 percent

b. 14.79 percent

c. 15.87 percent

d. 18.27 percent

e. 22.46 percent