# View the step-by-step solution to: The annual returns, in percentages, on stocks A and B for three

The annual returns, in percentages, on stocks A and B for three possible states of the economy are given in the table below.

Economy State: Good, Probability: 0.5, Stock A: 40 Stock B: 20

Economy State: Average, Probability: 0.3, Stock A: 20 Stock B: 40

Economy State: Bad, Probability: 0.2, Stock A: 10 Stock B: 8

Question: If one invested in StockA, what would be the expected annual percentage return? Place your answer, in percent, in the blank. For example, an expected 10 percent return would be recorded as 10. Do not use a percent sign.

Calculation of return for Stock A according to the states of the economy.
Economy State Good
Economy State Average

Return is (0.5 x 40) 20
Return is (0.3 x 20) 6
Return is (0.2 x...

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