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 21 percent in a boom economy,11 percent in a normal economy,and only 3 percent in a recessionary economy.The probabilities of these economic states are 10 percent for a boom,70 percent for a normal economy,and 20 percent for a recession.What is the variance of the returns on this common stock?

A) 0.002150
B) 0.002606
C) 0.002244
D) 0.002359
E) 0.002421