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Investment Recommendation Based on Expected Return
An investor is evaluating two potential stock investments, Stock A and Stock B. The potential one-year returns for each stock depend on different economic scenarios, with the following probabilities:
Stock A:
- Scenario 1: 20% chance of a 40% gain
- Scenario 2: 50% chance of a 10% gain
- Scenario 3: 30% chance of a 15% loss
Stock B:
- Scenario 1: 30% chance of a 15% gain
- Scenario 2: 60% chance of an 8% gain
- Scenario 3: 10% chance of a 2% gain
Based on an analysis of the anticipated average return for each investment, which stock would you recommend to the investor? Justify your recommendation by showing your calculations and explaining what the resulting figures represent in the context of making an investment decision.
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