What is the risk premium for stock market investment

Assignment Help Financial Management
Reference no: EM131586293

Assume the economy can experience high growth, normal growth or recession. under these conditions, you expect the following stock market returns

first column is the state of the economy, the second is the probability and the third is the return.

high growth.            0.2           15%

normal growth.       0.7           20%

recession.                0.1           -4%

a. compute the expected value of a $1000 investment over the co.ing year. if you invest $1000 today, how much money do you expect to have next year? what is the percentage expected rate of return?

the expected value is $_______ and the expected rate of return is _____%

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

standard deviation = _________%

c. if the risk free return is 7% what is the risk premium for a stock market investment?

risk premium = _______%

Reference no: EM131586293

Questions Cloud

Compute the current market value of this bond : A bond was issued 3 years ago at a coupon rate of 6%. The bond matures 20 years from today. Compute the current market value of this bond.
What would cost of equity be if debt-equity ratio were zero : What is the company’s cost of equity capital? What would the cost of equity be if the debt-equity ratio were zero?
The rate of return that the company made was : An A&E firm planning for a future expansion deposited $32,000 each year for 5 years into a sinking (investment) fund that was to pay an unknown rate of return.
What debt-equity mix would you recommend : Whose background is in financial planning, is concerned about company’s high weighted average cost of capital of 28%. what debt-equity mix would you recommend?
What is the risk premium for stock market investment : compute the standard deviation of the percentage return over the coming year. what is the risk premium for a stock market investment?
What was effective interest rate the engineer paid for loan : What was the effective interest rate the engineer paid for the loan?
What will be break-even level of ebit : GTB, Inc., has a 20 percent tax rate and has $86,136,000 in assets, currently financed entirely with equity. What will be the break-even level of EBIT?
What are current yield-yield to maturity and yield to call : What are the current yield, yield to maturity and yield to call for this bond?
What is Kuhns WACC for this project : Kuhn company is considering a new project that will require an initial investment of $45 million. What is Kuhn's WACC for this project?

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd