You Recently Purchased a Stock That Is Expected to Earn

Multiple Choice

You recently purchased a stock that is expected to earn 16% in a booming economy, 12% in a normal economy, and lose 8% in a recessionary economy. There is a 20% probability of a boom, a 70% chance of a normal economy, and a 10% chance of a recession. What is your expected rate of return on this stock?

A) 6.00%
B) 6.67%
C) 8.60%
D) 10.80%
E) 12.40%