Expected Return. Hull Consultants, a famous think tank in the Midwest, has provided probability estimates for the four potential economic states for the coming year. The probability of a boom economy is 13%, the probability of a stable growth economy is 15%, the probability of a stagnant economy is 52%, and the probability of a recession is 20%. Estimate the expected returns on the following individual investments for the coming year, Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places. The input instructions, phrases in parenthesis after each answer box, only apply for the answers you will type. What is the expected return of the corporate bond investment?
Expected Return. Hull Consultants, a famous think tank in the Midwest, has provided probability estimates for the four potential economic states for the coming year. The probability of a boom economy is 13%, the probability of a stable growth economy is 15%, the probability of a stagnant economy is 52%, and the probability of a recession is 20%. Estimate the expected returns on the following individual investments for the coming year, Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places. The input instructions, phrases in parenthesis after each answer box, only apply for the answers you will type. What is the expected return of the corporate bond investment?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Expected Return.
Hull Consultants, a famous think tank in the Midwest, has provided probability estimates for the four potential economic states for the coming year. The probability of a boom economy is 13%,
the probability of a stable growth economy is 15%,
the probability of a stagnant economy is 52%,
and the probability of a recession is 20%.
Estimate the expected returns on the following individual investments for the coming year,
Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places. The input instructions, phrases in parenthesis after each answer box, only apply for the answers you will type.
What is the expected return of the corporate bond investment?
Transcribed Image Text:The table titled "Forecasted Returns for Each Economy" shows the expected return percentages for different types of investments under various economic conditions. The categories of investments are Stock, Corporate bond, and Government bond. The economic conditions considered are Boom, Stable Growth, Stagnant, and Recession.
- **Stock**:
- Boom: 28%
- Stable Growth: 13%
- Stagnant: 4%
- Recession: -11%
- **Corporate Bond**:
- Boom: 10%
- Stable Growth: 7%
- Stagnant: 5%
- Recession: 4%
- **Government Bond**:
- Boom: 9%
- Stable Growth: 6%
- Stagnant: 4%
- Recession: 3%
This table provides a comparative overview of how different types of investments are expected to perform across varying economic scenarios. Stocks have the highest potential return during a boom but incur losses during a recession. Corporate and government bonds present more stable returns, with government bonds offering the least variability.
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