Question

A stock is expected to return 13 percent in an economic boom, 10 percent in a normal economy, and 3 percent in a recessionary economy. Which one of the following will lower the overall expected rate of return on this stock?
-An increase in the probability of an economic boom
-A decrease in the probability of a recession occurring
-An increase in the rate of return for a normal economy
-An increase in the rate of return in a recessionary economy
-A decrease in the probability of an economic boom

Answer 1

Answer:-A decrease in the probability of an economic boom

Explanation:When the probability of an economic boom is decreased it will cause investors to loss interest investing in an economy because the rate of return will be expected by the investing public to be low.

The higher the probability of an economic boom occuring the higher the rate of return expected on the stocks, this is a normal economic situation where investors follow the trends available to take economic decisions.