Assume that the economy can experience high growth, normal growth, or recession. Under these conditions, you...
Assume that the economy can experience high growth, normal
growth, or recession. Under these conditions, you expect the
following stock market returns for the coming year:
-
State of the Economy Probability Return High Growth 0.2 25% Normal Growth 0.7 11% Recession 0.1 -1%
a. Compute the expected value of a $1,000 investment over the coming year. If you invest $1,000 today, how much money do you expect to have next year? What is the percentage expected rate of return?
Instructions: Enter dollar values rounded to the nearest whole dollar and percentages rounded to one decimal place.
The expected value is $ and the expected rate of return is %.
b. Compute the standard deviation of the percentage return over the coming year.
Standard deviation = %
c. If the risk-free return is 7 percent, what is the risk premium for a stock market investment?
Risk premium = %
Homework Answers
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Assume that the economy can experience high growth, normal
growth, or recession. Under these conditions, you...
Assume that the economy can experience high growth, normal growth, or recession. Under these conditions, you...
Assume that the economy can experience high growth, normal growth, or recession. Under these conditions, you expect the following stock market returns for the coming year: Return 40% 14% State of the Economy High Growth Normal Growth Recession Probability 0.2 0.7 0.1 a. Compute the expected value of a $1,000 investment over the coming year. If you invest $1,000 today, how much money do you expect to have next year? What is the percentage expected rate of return? Instructions: Enter...
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