Problem 1

A. What is the expected return of stock A that when a recession happens (25% probability) its return is 10% and when a boom happens (75% probability) its return is 30%?

B. What is the expected return of stock B that when a recession happens (25% probability) its return is 3% and when a boom happens (75% probability) its return is 45%?

C. Also calculate the variance and standard deviation of stock A and B