You have predicted the following returns for stocks A and B in three possible states of...

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You have predicted the following returns for stocks A and B in three possible states of nature What is expected return for st

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Answer 1

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Stock A	A	B	*C=AB**
State	Probability	Return	Expected Return
Boom	0.10	0.20	2.00%
Normal	0.40	0.10	4.00%
Recession	0.50	0.05	2.50%
Expected Return			8.50%
So Expected Return is 8.5%.

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