You Recently Purchased a Stock That Is Expected to Earn

Multiple Choice

You recently purchased a stock that is expected to earn 22 percent in a booming economy, 9 percent in a normal economy, and lose 33 percent in a recessionary economy. There is a 5 percent probability of a boom and a 75 percent chance of a normal economy. What is your expected rate of return on this stock?

A) -3.40 percent
B) -2.25 percent
C) 1.25 percent
D) 2.60 percent
E) 3.50 percent