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Assume that the economy can experience high growth, normal growth, or recession. You expect the following stock market returns for the coming year under these conditions.

State Probability Return
High Growth 0.2 +30%
Normal Growth 0.7 +12%
Recession 0.1 -15%

a. Compute the expected value of a $1000 investment both in dollars aand as a percentage over the coming year.
b. Compute the standard deviation of the return over the coming year.
c. If the risk free return is 7%, what is the risk premium for a stock market investment?

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9480484

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