Economy can experience high growth-normal growth

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Reference no: EM13771199

Assume that the economy can experience high growth, normal growth, slow down or severe recession. Under these conditions you expect the following stock market returns for the coming year:

state of the economy probability return

high growth .25 30%

normal growth .4 10%

slow down .2 2%

severe recession .15 -10

a. compute the expected value of a $1000 investment over the coming year. What is the expected return on investment?

b. compute the standard deviation of the return as a percentage over the coming year.

c. if the risk free return is 9%, what is the risk premium for a stock market investment?

Reference no: EM13771199

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