RTF stock is expected to return 13 percent in a normal economy and lose 8 percent in a recession.The probability of a recession is 25 percent.What is the variance of the returns on RTF stock?
A).009093
B).008760
C).007864
D).008269
E).009394

Question

Quizplus · Accepted Answer

E(r)= ((1 - .25)× .13)+ (.25 × -.08)= .0775Var = (1 - .25)× (.13 - .0775)² + .25 × (-.08 - .0775)² = .008269

RTF Stock Is Expected to Return 13 Percent in a Normal