State of the Economy High Growth Normal Growth Recession Probability Return 0.2 +30% 0.7 +12% 0.1 -15% Compute the expected value of a $1,000 investment over the coming year. If you invest $1,000 today, how much money do you xpect to have next year? What is the percentage expected rate of return? structions: Enter dollar values rounded to the nearest whole dollar and percentages rounded to one decimal place. The expected value is $ 1129 and the expected rate of return is 12.9 %. . Compute the standard deviation of the percentage return over the coming year. tandard deviation = 11.7 % If the risk-free return is 7 percent, what is the risk premium for a stock market investment? isk premium = | 17.5 %
State of the Economy High Growth Normal Growth Recession Probability Return 0.2 +30% 0.7 +12% 0.1 -15% Compute the expected value of a $1,000 investment over the coming year. If you invest $1,000 today, how much money do you xpect to have next year? What is the percentage expected rate of return? structions: Enter dollar values rounded to the nearest whole dollar and percentages rounded to one decimal place. The expected value is $ 1129 and the expected rate of return is 12.9 %. . Compute the standard deviation of the percentage return over the coming year. tandard deviation = 11.7 % If the risk-free return is 7 percent, what is the risk premium for a stock market investment? isk premium = | 17.5 %
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.2P
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Question
![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:
Probability
State of the Economy
High Growth
Return
0.2
+30%
Normal Growth
0.7
+12%
Recession
0.1
-15%
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 $
1129 and the expected rate of return is
12.9 %.
b. Compute the standard deviation of the percentage return over the coming year.
Standard deviation
11.7 %
c. If the risk-free return is 7 percent, what is the risk premium for a stock market investment?
Risk premium
17.5 %](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9af1cec6-0206-4852-8bf3-3db5fa6324a8%2F3c14a894-1503-4219-8e3a-2f1d3c9d59f5%2Fgzkvqoe_processed.png&w=3840&q=75)
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:
Probability
State of the Economy
High Growth
Return
0.2
+30%
Normal Growth
0.7
+12%
Recession
0.1
-15%
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 $
1129 and the expected rate of return is
12.9 %.
b. Compute the standard deviation of the percentage return over the coming year.
Standard deviation
11.7 %
c. If the risk-free return is 7 percent, what is the risk premium for a stock market investment?
Risk premium
17.5 %
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