Use the information for the question(s) below.
Consider an economy with two types of firms, S and U. S firms always move together, but U firms move independently of each other. For both types of firms there is a 70% probability that the firm will have a 20% return and a 30% probability that
the firm will have a -30% return.
-What is the expected return for an individual firm?
A) 3%
B) 5%
C) -5%
D) 14%
Correct Answer:
Verified
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