The company that prints unemployment insurance checks is named ...

[kshipps]

The company that prints unemployment insurance checks is named Countercyclical Printing, Inc Countercyclical Printing's beta is -0.75, the risk free rate is 8, and the risk premium on the market is 7.
 
  What is the equilibrium expected rate of return on Countercyclical Printing's stock?
  A) -8.75
  B) -3.25
  C) 2.75
  D) 4.50
  E) 5.25

Question 2

You are considering buying a share of stock in a firm that has the following two possible payoffs with the corresponding probability of occurring.
 
  The stock has a purchase price of 50.00. You forecast that there is a 40 chance that the stock will sell for 70.00 at the end of one year. The alternative expectation is that there is a 60 chance that the stock will sell for 30.00 at the end of one year. What is the expected percentage return on this stock, and what is the return variance?
  A) -8.00, 15.36
  B) 4.00, 30.72
  C) 8.00, 15.36
  D) -4.00, -30.72

[AmberC1996]

Answer to Question 1

C

Answer to Question 2

Answer: A
Explanation: A) Expected payoff =  Expected payoffi  probabilityi = .40  70.00 + .60  30 = 46.00.
E(r) = = = -8.00
Variance = (0.40)(0.40 - (-.08))2 + (0.60)(-0.40 - (-0.08))2 = 0.1536, or 15.36.

[kshipps]

Excellent

[AISCAMPING]

Gracias!