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1) Sue purchased a stock for $25 a share, held it for one year, received a $1

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1) Sue purchased a stock for $25 a share, held it for one year, received a $1.34 dividend,

and sold the stock for $26.45. What nominal rate of return did she earn?

2) A stock is expected to return 11% in a normal economy, 19% if the economy booms,

and lose 8% if the economy moves into a recessionary period. Economists predict a 65%

chance of a normal economy, a 25% chance of a boom, and a 10% chance of a recession.

What is the expected return on the stock?