An investor owns a security that is expected to return 10 percent in a booming economy and 3 percent in a normal economy.The overall expected return on the security is 5.45 percent.Given there are only two states of the economy,what is the probability that the economy will boom?
A) 28 percent
B) 33 percent
C) 35 percent
D) 41 percent
E) 45 percent

Question

Quizplus · Accepted Answer

5.45 = 10x + (1 - x)(3); x = 35%

An Investor Owns a Security That Is Expected to Return