The Table Below Presents Returns Across Three States of Nature

question 2

Multiple Choice

The Table below presents returns across three states of nature for two assets: Risky and Safe. The expected return on Safe is 8.4%. Which asset has a higher expected return? $$\begin{array} { | c | c | c | c | } \hline \text { State of Nature } & \text { Probability } & \begin{array} { c } \text { Return to Risky } \\\text { Investment }\end{array} & \begin{array} { c } \text { Return to Safe } \\\text { Investment }\end{array} \\\hline \text { Recession } & 0.2 & - 5 \% & 14 \% \\\hline \text { Normal } & 0.6 & 15 \% & 8 \% \\\hline \text { Boom } & 0.2 & 25 \% & 4 \% \\\hline\end{array}$$

• A)Risky
• B)Safe
• C)Both have the same expected return