1. If the economy booms, RTF, Inc. stock is expected to return 15%. If the economy goes into a recessionary period, then RTF is expected to only return 3%. The probability of a boom is 60% while the probability of a recession is 40%. What is the variance of the returns on RTF, Inc. stock?

2. The Rotor Co. stock is expected to earn 16% in a recession, 7% in a normal economy, and lose 3% in a booming economy. The probability of a boom is 20% while the probability of a normal economy is 55% and the chance of a recession is 25%. What is the expected rate of return on this stock?