1.There are three new securities available in the market with four probable states of the economy. The following table shows the returns on these securities under each of the probable states and the probabilities for each state.
|
State of Economy
|
Probability
|
Security 1
|
Security 2
|
Security 3
|
|
Mild Recession
|
10.0%
|
20.00%
|
2.00%
|
-8.00%
|
|
Low Growth
|
40.0%
|
12.00%
|
5.00%
|
4.00%
|
|
Moderate Growth
|
40.0%
|
6.00%
|
10.00%
|
12.00%
|
|
Rapid Growth
|
10.0%
|
-4.00%
|
15.00%
|
22.00%
|
1. Given the probabilities for the four possible economic conditions, calculate the expected returns for security 1 (Enter your answer as a percentage, not in decimal form. E.g. 15% should be entered as 15.00 and not as 0.15)
2. Given the probabilities for the four possible economic conditions, calculate the expected returns for security 2 (Enter your answer as a percentage, not in decimal form. E.g. 15% should be entered as 15.00 and not as 0.15)
3. Given the probabilities for the four possible economic conditions, calculate the expected returns for security 3 (Enter your answer as a percentage, not in decimal form. E.g. 15% should be entered as 15.00 and not as 0.15)
2. Fisher Corp has a beta value of 0.5. If the risk free rate is 2.5% and the Market Risk Premium is 11.0%, what is the Expected/Required return on Fisher Corp's stock? Using the Capital Asset Pricing Model, calculate the expected / required rate of return. (Enter your answer as a percentage, not in decimal form. E.g. 15% should be entered as 15.00 and not as 0.15)