Problem:
If the economy booms, RTF, Inc. stock is expected to return 10 percent. If the economy goes into a recessionary period, then RTF is expected to only return 2 percent. The probability of a boom is 66 percent while the probability of a recession is 34 percent.
Required:
Question: What is the variance of the returns on RTF, Inc. stock?
Note: Solve the problem and show all work.