Assume the economy can experience high growth, normal growth or recession. under these conditions, you expect the following stock market returns
first column is the state of the economy, the second is the probability and the third is the return.
high growth. 0.2 15%
normal growth. 0.7 20%
recession. 0.1 -4%
a. compute the expected value of a $1000 investment over the co.ing year. if you invest $1000 today, how much money do you expect to have next year? what is the percentage expected rate of return?
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% what is the risk premium for a stock market investment?
risk premium = _______%