10: Beasley Enterprises stock has an expected return of 8.86 percent. The stock is expected to return 12.5 percent in a normal economy and 16 percent in a boom. The probabilities of a recession, normal economy, and a boom are 11 percent, 88 percent, and 1 percent, respectively. What is the expected return if the economy is in a recession? A. -20.91 percent B. -18.71 percent C. -13.28 percent D. -4.76 percent E. -22.72 percent
10: Beasley Enterprises stock has an expected return of 8.86 percent. The stock is expected to return 12.5 percent in a normal economy and 16 percent in a boom. The probabilities of a recession, normal economy, and a boom are 11 percent, 88 percent, and 1 percent, respectively. What is the expected return if the economy is in a recession? A. -20.91 percent B. -18.71 percent C. -13.28 percent D. -4.76 percent E. -22.72 percent
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 17PROB
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
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Transcribed Image Text:10:
Beasley Enterprises stock has an expected
return of 8.86 percent. The stock is expected to
return 12.5 percent in a normal economy and
16 percent in a boom. The probabilities of a
recession, normal economy, and a boom are 11
percent, 88 percent, and 1 percent, respectively.
What is the expected return if the economy is in
a recession?
A. -20.91 percent
B. -18.71 percent
C. -13.28 percent
D. -4.76 percent
E. -22.72 percent
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