Intro You've estimated the following expected returns for a stock, depending on the strength of the economy: State (s) Probability Expected return Recession 0.1 -0.04 Normal 0.5 0.07 Expansion 0.4 0.12 IB Attempt 1/5 for 2 pts. Part 1 What is the expected return for the stock? 0.080 Correct The expected return is the weighted average return across all states of the economy: E(R) - (.E(R.)) = 0.1 * (-0.04) + 0.5 0.07 + 0.4 0.12 = 0.079 The expected return is the weighted average return across a E(R) = (1.E(R.)) = 0.1 * (-0.04) + 0.5 * 0.07 +0.4 * 0.12 = 0.079 Part 2 What is the standard deviation of returns for the stock? 4+ decimals