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 High Growth Normal Growth Recession Probability 0.2 0.7 Return 334 134 0.1 -33% 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 $[ Jand the expected rate of return is

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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
High Growth
Normal Growth
Recession
Probability
Return
0.2
0.7
33
134
0.1
-334
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 $D
Jand the expected rate of return i [
b. Compute the standard deviation of the percentage return over the coming year.
Standard deviation=D
c. If the risk-free return is 7 percent, what is the risk premium for a stock market investment?
Risk premium O%
Transcribed Image Text: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 High Growth Normal Growth Recession Probability Return 0.2 0.7 33 134 0.1 -334 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 $D Jand the expected rate of return i [ b. Compute the standard deviation of the percentage return over the coming year. Standard deviation=D c. If the risk-free return is 7 percent, what is the risk premium for a stock market investment? Risk premium O%
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