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A company faces the following probability distribution: State of the Economy Probability of this State Occurring (p i ) Rate of Return if this State

A company faces the following probability distribution:

State of the Economy Probability of this State Occurring (pi) Rate of Return if this State Occurs (ki)
Boom 0.1 10%
Normal 0.5 8%
Recession 0.4 5%

What is the expected rate of return on the company's stock?

a

8%

b

5%

c

7%

d

6%

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