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You have predicted the following returns for stocks A and B in three possible states of the economy. First, find the probability of a recession.
You have predicted the following returns for stocks A and B in three possible states of the economy. First, find the probability of a recession. What are the expected returns on Stock A and B, respectively? Return of Stock A 15% 10% 2% Return of Stock B 25% 20% 1% State Probability Boom 25% Normal 50% Recession 722 8.25%; 15% 8.75% 15.5% 9% 16% 9.25%; 16.5% 9.5%; 16.75%
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