Use this information to answer questions 9 and 10.

State of Probability Returns
Economy of State Stock A Stock B Stock C
Boom .10 11 % 33% 15%
Normal .85 8 12 10
Recession .05 3 -46 -6

9. Junkers stock is expected to return 12.7 percent in a normal economy, -18.4 percent in a recessionary economy, and 23.6 percent in a booming economy. The probability of a boom is 8 percent and the probability of a recession is 22 percent. What is the expected rate of return on this stock?
a. 6.73 percent b. 8.21 percent c. 8.57 percent d. 10.22 percent

10. There is a 60 percent probability that a stock will earn 9.5 percent, a 35 percent probability that it will earn 11.7 percent, and a 5 percent probability that it will lose 7.6 percent. What is the variance of these returns?
a. 0.001408 b. 0.001492 c. 0.001584 d. 0.001631

11. Ambrose Industries stock has an average expected rate of return of 13.6 percent and a standard deviation of 11.8 percent. What is the probability the stock will lose more than 10 percent in any one year?
a. .5 percent b. 1.0 percent c. 2.5 percent d. 5.0 percent

12. Kate invested $7,400 in stock A, $11,200 in stock B, and $3,900 in stock C. What is the portfolio weight of stock C?
a. 0.1448 b. 0.1623 c. 0.1733 d. 0.1847

13. A portfolio is equally invested in 2 stocks and a risk-free security. Stock A is equally as risky as the market and stock B has a beta of 1.24. What is the portfolio beta?
a. 0.67 b. 0.75 c. 0.86 d. 0.91

14. Stock A has a beta of 1.19 and an expected rate of return of 13.42 percent. The market risk premium is 8.2 percent and the risk-free rate is 4.1 percent. Which one of the following statements related to Stock A is correct?
a. Stock A is correctly priced.
b. Stock A is underpriced.
c. Stock A is overpriced.
d. The answer cannot be determined based on the information provided.

15. A stock has a beta of 0.96 and a standard deviation of 8.3 percent. The market rate of return is 11.9 percent and the market risk premium is 7.4 percent. What is the expected return on the stock?
a. 11.60 percent b. 11.81 percent c. 11.96 percent d. 12.13 percent

16. Katie invested 40 percent of her portfolio in stock A, 35 percent in stock B, and the remainder in stock C. What is
her expected rate of return on this portfolio?
a. 7.76 percent b. 8.21 percent c. 8.70 percent d. 9.57 percent