On pages 350-351, the text discusses the expected measures of return and risk. The expected return can be based on the weighted average of the probabilities of a state of nature, such as boom economy, normal economy, and recession (see table on page 351).

Here is a table of probabilities:

Nature Probability Expected Return under that scenario

Boom Economy .25 16%

Normal Economy .60 10%

Recession .15 8%

Calculate the expected rate of return based on the above table. HINT: See the equation used on page 351 where they show an 8.5 percent return.