An Investor Owns a Security That Is Expected to Return

Multiple Choice

An investor owns a security that is expected to return 12% in a booming economy and 4% in a normal economy. The overall expected return on the security is 7.80%. Given there are only two states of the economy, what is the probability that the economy will boom?

A) 35.0%
B) 37.5%
C) 40.0%
D) 45.0%
E) 47.5%