What is the variance of the expected returns on this stock?
$\begin{array}{lcr}
\text { State of the Economy } & \text { Probability } & E(R) \
\text { Boom } & .25 & 15 \% \
\text { Normal } & .75 & 8 \%
\end{array}$
A)5.25
B)5.79
C)6.25
D)9.19
E)10.50

Question

Quizplus · Accepted Answer

The variance of the expected returns on this stock is 5.79%. This is calculated by taking the weighted average of the variances of the expected returns in each state of the economy. The variance of the expected return in the boom state is 0.0625, and the variance of the expected return in the normal state is 0.04. The weighted average of these variances is 0.0579, or 5.79%.

What Is the Variance of the Expected Returns on This