Mountain stock is expected to earn 18% in a boom, 8% in a normal economy, and lose
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Question:
Mountain stock is expected to earn 18% in a boom, 8% in a normal economy, and lose 2% in a recession economy. The probability of a boom is 20% while the probability of a normal economy is 55% and the chance of a recession is 25%. The Canadian treasure-bill rate is 1.5% and the market risk premium is 3%.
A)What is the expected rate of return on this stock?
B)What is the standard deviation for this stock?
C)If the beta for this stock is 0.9, what is New West Chocolate Mountain's reward to risk ratio?
D) Based on the reward-to-risk ratio, if you were an investor, would you buy this stock? Explain.
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