An analyst has predicted the following returns for Stock A and Stock B in three possible states of the economy.
State Probability A B
Boom........................0.3.........0.15...0.25
Normal.......................0.5.........0.10...0.20
Recession......................?............0.02...0.01
a. What is the probability of a recession?
b. Calculate the expected return for Stock A and Stock B.
c. Calculate the expected return for a portfolio that is invested 55% in A and 45% in B.