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10- Consider the following three state of the worlds (bad, average, and good) and the performance for CD Return, Government Bonds, and Stocks. State CD

10-

Consider the following three state of the worlds (bad, average, and good) and the performance for CD Return, Government Bonds, and Stocks.

State CD Return Bond Return Stock Return
1. Good 2% 4% 15%
2. Average 2% 3% 7%
3. Bad 2% 1% -5%

Goldman Sachs projects for next year the likelihood of a good state is 40%, the likelihood of an average state is 45%, and the likelihood of a bad state is 15%.

What is the expected return for Bonds? (round to two digits, e.g. 5.18%)

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