The Rate of Return on the Common Stock of Lancaster

Multiple Choice

The rate of return on the common stock of Lancaster Woolens is expected to be 18 percent in a boom economy, 8 percent in a normal economy, and only 2 percent in a recessionary economy. The probabilities of these economic states are 12 percent for a boom and 10 percent for a recession. What is the variance of the returns on this common stock?

A) .001150
B) .001306
C) .001524
D) .001389
E) .001421