The Rate of Return on the Common Stock of Flowers

Multiple Choice

The rate of return on the common stock of Flowers by Flo is expected to be 14% in a boom economy, 8% in a normal economy, and only 2% in a recessionary economy. The probabilities of these economic states are 20% for a boom, 70% for a normal economy, and 10% for a recession. What is the variance of the returns on the common stock of Flowers by Flo?

A) 0.001044
B) 0.001280
C) 0.001863
D) 0.002001
E) 0.002471