The Returns on the Common Stock of Cycles, Inc

Multiple Choice

The returns on the common stock of Cycles, Inc. are quite cyclical. In a boom economy, the stock is expected to return 27% in comparison to 13% in a normal economy and a negative 20% in a recessionary period. The probability of a recession is 30% while the probability of a boom is 5%. 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%
B) 14.79%
C) 15.87%
D) 18.27%
E) 22.46%