The Common Stock of Manchester & Moore Is Expected to Earn

Multiple Choice

The common stock of Manchester & Moore is expected to earn 14 percent in a recession, 7 percent in a normal economy, and lose 4 percent in a booming economy. The probability of a boom is 15 percent while the probability of a recession is 5 percent. What is the expected rate of return on this stock?

A) 8.5 percent
B) 8.7 percent
C) 5.7 percent
D) 7.5 percent
E) 6.2 percent