Question: Example: Expected Returns Suppose you have predicted the following returns for stocks C and T in three possible states of the economy. What are the

Example: Expected Returns Suppose you have predicted the following returns for stocks C and T in three possible states of the economy. What are the expected returns? State Probability I5 25 Boom 0.3 -5 2 o Normal 2 1 Recession RC = .3(15) + .5(10) + .2(2) = 9.9% RT= .3(25)+ .5(20) + .2(1) 17.7% 1

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