1. Based on Baker's earnings history over the past 10 years across a variety of projects, which have covered various states of the economy, the venture capital execs want Baker to estimate their overall returns. Given the following estimates of economy over the next several years, determine Baker's expected rate of return. (6 pts)

Note, this type of development firm has much higher than normal returns under normal and boom conditions. The probability of each state of the economy reflects the current situation, not necessarily historic market conditions for the firm.

State of the Economy	Current Probability of State of the Economy	Rate of Return if State Occurs
Boom	30%	15.0%
Normal	45%	9.0%
Recession	25%	-21.0%

Expected return for average company project (based on assumed economic probabilities) =