High Flier's common stock is expected to return 28 percent in a boom economy,14 percent in a normal economy, and -32 percent in a recession. The probability of a boom is 20 percent, of a normal economy is 70 percent, and of a recession is 10 percent. What is the expected return on High Flier's common stock?
a. 10.9 percent
b. 11.4 percent
c. 12.2 percent
d. 13.6 percent
The solution explains how to calculate the expected return.