Problem:
You recently purchased a stock that is expected to earn 12% in a booming economy, 8% in a normal economy and lose 5% in a recessionary economy. There is a 15% probability of a boom, a 75% chance of a normal economy, and a 10% chance of a recession.
Required:
Question: What is your expected rate of return on this stock?
- 6.45%
- 8.30%
- 5.00%
- 7.65%
- 7.30%
Note: Please show guided help with steps and answer.