Question

3. The return on a stocks would be 12%, 45%, or 38%, given that there is a recession, boom economy, and normal economic growth,respectively. There is a 15%, 35%, and

50% probability of a recession, boom economy, and normal economy, respectively. a. What is the probability of a boom economy? b. What return would an investor expect for this stock during boom economy?

Fig: 1

Fig: 2