Problem:

You recently purchased a stock that is expected to earn 26 percent in a booming economy, 15 percent in a normal economy, and lose 4 percent in a recessionary economy. There is a 27 percent probability of a boom, a 63 percent chance of a normal economy, and a 10 percent chance of a recession.

Required:

What is your expected rate of return on this stock?

• 2.70 percent
• 12.33 percent
• 13.67 percent
• 8.04 percent
• 16.07 percent

Note: Please explain comprehensively and give step by step solution.