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?

State

Boom

Probability.

Retum of Stock A

Retum of Stock B

25%

25%

15%

Normal

50%

10%

Recession

2??

O A. 8.25%; 15%

20%

1%

2%

O B.8.75% 15.5%

O C. 9%; 16%

A

O D.9.25%; 16.5%

O E. 9.5%; 16.75%