To calculate the expected return, use the formula:

$\text{Expected Return} = \sum (\text{Probability of State} \times \text{Rate of Return})$

Given Data:

1. Recession: Probability = $0.39$, Rate of Return = $-0.13$
2. Boom: Probability = $0.61$, Rate of Return = $0.25$

Calculation:

$\text{Expected Return} = (0.39 \times -0.13) + (0.61 \times 0.25)$

1. Calculate for the recession: $0.39 \times -0.13 = -0.0507$

2. Calculate for the boom: $0.61 \times 0.25 = 0.1525$

3. Add the results: $\text{Expected Return} = -0.0507 + 0.1525 = 0.1018$

Convert to Percentage:

$\text{Expected Return as Percent} = 0.1018 \times 100 = 10.18\%$

Final Answer:

$\boxed{10.18\%}$

Would you like to explore more examples or have a detailed explanation?
Here are 5 related questions:

1. How does the expected return formula differ with three or more economic states?
2. What is the significance of probability in expected return calculations?
3. Can the expected return be negative, and under what circumstances?
4. How do you calculate variance and standard deviation for these probabilities?
5. How is the expected return used in investment decision-making?

Tip: Always ensure the probabilities sum to 1 when using this formula.