If the Economy Booms, R&F, Inc

Multiple Choice

If the economy booms, R&F, Inc. stock is expected to return 16%. If the economy goes into a recessionary period, then R&F is expected to only return 3%. The probability of a boom is 80% while the probability of a recession is 20%. What is the variance of the returns on R&F stock?

A) .002704
B) .006183
C) .011492
D) .030081
E) .052000