1. To compensate for differences in the amounts of principal required by an investment opportunities, investors use ________ return as their selection criterion.

1. average annual

2. rate of

3. expected

4. net

2. The returns on the common stock of a particular company are quite cyclical. In a boom economy, the stock is expected to return 32% in comparison to 14% in a normal economy and a negative 28% in a recessionary period. The probability of a recession is 25% while the probability of a boom is 20%. What is the standard deviation of the returns on this stock?

A. 0.2141

B. 0.2156

C. 0.2583

D. 0.3208

E. 0.3977