Problem:
If the economy booms, RTF, Inc. stock is expected to return 11 percent. If the economy goes into a recessionary period, then RTF is expected to only return 4 percent. The probability of a boom is 63 percent while the probability of a recession is 37 percent.
Required:
Question: What is the variance of the returns on RTF, Inc. stock?
- 0.001142
- 0.000841
- 0.001465
- 0.032872
- 0.000259
Note: Provide thorough explanation of the given question.