Consider the following two stocks. Probabilities ( pi ) Stock "a" Stock "b" Recession p1= 35% -9% 2% Normal p2= 30% 4% -9% Boom p3= ​35% 13% 27% What is the expected return of each stock? Enter your calculations.
a. Expected return of stock "a" = (0.35 * -9%) + (0.30 * 4%) + (0.35 * 13%) = -3.15% + 1.2% + 4.55% = 2.6%
Expected return of stock "b" = (0.35 * 2%) + (0.30 * -9%) + (0.35 * 27%) = 0.7% - 2.7% + 9.45% = 7.45%

b. Expected return of stock "a" = (0.35 * -9%) + (0.30 * 4%) + (0.35 * 13%) = -0.315 + 1.2 + 4.55 = 2.430
Expected return of stock "b" = (0.35 * 2%) + (0.30 * -9%) + (0.35 * 27%) = 0.7 - 2.7 + 9.45 = 7.450

c. Expected return of stock "a" = (0.35 * -9%) + (0.30 * 4%) + (0.35 * 13%) = -0.035 + 0.12 + 0.455 = 0.54
Expected return of stock "b" = (0.35 * 2%) + (0.30 * -9%) + (0.35 * 27%) = 0.07 - 0.27 + 0.945 = 0.745

d. Expected return of stock "a" = (0.35 * -9%) + (0.30 * 4%) + (0.35 * 13%) = -3.15% + 1.2% + 4.55% = 2.6%
Expected return of stock "b" = (0.35 * 2%) + (0.30 * -9%) + (0.35 * 27%) = 0.7% - 2.7% + 9.45% = 7.45%