Question
Assume the economy can only be in two states. It can either be booming or in recession. The probability that the economy will boom is
Assume the economy can only be in two states. It can either be booming or in recession. The probability that the economy will boom is 38%. You are considering investing in either Stock A or Stock B. If the economy booms, then the return of Stock A would be 4.6%, and the return of Stock B would be 0.8%. In a recession, the return of Stock A would be -1.4%, and the return of Stock B would be 21.7%. What is the difference between the expected returns of these stocks? Your answer must be the result of the expected return of Stock A minus the expected return of Stock B.
Enter your answer as a percentage, without the percentage sign ('%'), and rounded to 2 decimals. If your answer is negative, use the minus sign ('-').
Step by Step Solution
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