1. If the economy is in the boom, the stock White Woods Furniture is expected to return 15 percent. If the economy is in the recession, the stock's return is expected to be 5 percent. The probability of a boom is 60 percent while the probability of a recession is 40 percent. What is the variance of the returns on this stock? A. 0.0015 B. 0.0024 C. 0.0035 D. 0.0038 E. 0.0044
2. Jackson Systems made two announcements on its outstanding stock today. First, the company announced that the dividend for the next year will be $2.20 a share. Secondly, all dividends after that will increase by 3 percent annually. What is the maximum amount you should pay to purchase a share of this stock today if you require a 14 percent rate of return? A. $12.95 B. $15.70 C. $20.00 D. $21.25 E. $22.00