The returns on the common stock of New Image Products are quite cyclical. In a boom economy, the stock is expected to return 32 percent in comparison to 14 percent in a normal economy and a negative 28 percent in a recessionary period.
The probability of a recession is 25 percent while the probability of a boom is 10 percent and normal period is 65%.
a. What is the expected returned of the stock?
b. What is the variance of the stock?
c. What is the standard deviation of the returns on this stock?