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As an investor, a particular companys stock has caught your eye and you are considering purchasing the stock. You know that in a strong economy,
As an investor, a particular companys stock has caught your eye and you are considering purchasing the stock. You know that in a strong economy, the stock averages a 17% return. In an average economy, the stock averages a 9% return. While in a weak economy, the stock averages a 6% loss (or -6% return). The probability of a strong economy is 25%, while the probability of an average economy is 45%, and the probability of a weak economy is 30%. Given this information, what is the expected return E[R] of this stock?
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