An analyst estimates there is a probability of 15 percent that there will be a recession next year. He thinks the probability of things being normal is three times the probability of a recession, with the remaining probability assigned to a boom taking place. A stock is expected to return -18 percent in a recession, 10 percent under normal conditions, and 24 percent if there is a boom. What is the expected return (in percent) on this stock?

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Recession return 18 and probability ... View the full answer