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Suppose your expectations regarding the stock market are as follows: State of the Economy Probability HPR...

Suppose your expectations regarding the stock market are as follows:

State of the Economy Probability HPR
Boom 0.3 44%
Normal growth 0.4 14
Recession 0.3 -16

Use the above forecasted distribution to compute the expected return of the stock market. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Another analyst has different opinions regarding the probablities of Boom and Recession states. (She agrees with you on all the other numbers in the table.)

You know that her expected stock market return is only 10%. What is the Boom probablity she has in mind?

(Express your answer in decimals, not percentages. Keep 2 decimal places. For example, say 0.10 not 10% )

(You will need to reverse engineer the calculate above. Solve an equation if necessary. Also, remember that all the probabilities must sum up to 1. )

Probability of boom?

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