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Consider an economy with two types of firms, S and I. S firms always move together, but I firms move independently of each other. For
Consider an economy with two types of firms, S and I. S firms always move together, but I firms move independently of each other. For both types of firms there is a
70
%
probability that the firm will have a 20% return and a
30
%
probability that the firm will have a
minus
30%
return.
What is the expected return for an individual firm?
A.
negative 15
%
B.
negative 5
%
C.
5
%
D.
3
%
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