A stock has an expected return of 10.23 percent. Based on the following information, what is the stock's return in a boom state of the economy? State of Economy Probability of State of Economy Rate of Return if State Occurs Recession .24 − 9.2 % Normal .45 10.7 % Boom .31 ?

A stock has an expected return of 10.23 percent. Based on the following information, what is the stock's return in a boom state of the economy? State of Economy Probability of State of Economy Rate of Return if State Occurs Recession .24 − 9.2 % Normal .45 10.7 % Boom .31 ?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section7.4: Valuing Common Stocks

Problem 3ST

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Question

A stock has an expected return of 10.23 percent. Based on the following information, what is the stock's return in a boom state of the economy?

State of Economy	Probability of State of Economy	Rate of Return if State Occurs
Recession	.24	−	9.2	%
Normal	.45		10.7	%
Boom	.31		?

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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