Assume the economy can only be in two states. It can either be booming or in recession. The probability that the economy will boom is 38%. You are considering investing in either Stock A or Stock B. If the economy booms, then the return of Stock A would be 4.6%, and the return of Stock B would be 0.8%. In a recession, the return of Stock A would be -1.4%, and the return of Stock B would be 21.7%. What is the difference between the expected returns of these stocks? Your answer must be the result of the expected return of Stock A minus the expected return of Stock B.

Enter your answer as a percentage, without the percentage sign ('%'), and rounded to 2 decimals. If your answer is negative, use the minus sign ('-').

Answer rating: 100% (QA)

To calculate the difference in expected returns we need to consider the weighted average of each st... View the full answer