Answer:
13.71%
Explanation:
the expected returns on the stock:
normal economy = 0.14 x 0.6 = 0.084
boom economy = 0.23 x 0.22 = 0.0506
recessionary economy = -0.18 x 0.18 = -0.0324
expected return = 0.1022
the variance for each economic period:
normal economy = (0.14 - 0.1022)² = 0.00142884
boom economy = (0.23 - 0.1022)² = 0.01633284
recessionary economy = (-0.18 - 0.1022)² = 0.07963684
the variance of the stock's returns:
normal economy = 0.6 x 0.00142884 = 0.000857304
boom economy = 0.22 x 0.01633284 = 0.0035932248
recessionary economy = 0.18 x 0.07963684 = 0.014334631
variance of the stock's returns = 0.018785159
standard deviation of stock's returns = √0.018785159 = 0.137058964 = 13.71%
