Question: What is the expected return on a stock if the firm will earn 20% during a period of economic boom, 10% during normal economic periods,

What is the expected return on a stock if the firm will earn 20% during a period of economic boom, 10% during normal economic periods, and 5% during a period of recession if the probabilities of these economic environments are 20%, 65%, and 15%, respectively?

Economic Environment Expected Return Probability of Environment
Boom 20% 20%
Normal 10% 65%
Recession 5% 15%

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