Risk premium for a stock market investment

Reference no: EM13338448

Assume that theeconomy can experience high growth, normal growth, or recession. You expect the followingstock-market returns for the coming year under these conditions:

Stateof the Economy Probability Return

HighGrowth 0.3 +30%

NormalGrowth 0.4 +12%

Recession 0.2 -15%

a. Compute the expected value of a Rs.1000 investment both in dollars and as a percentage over the coming year.

b. Compute the standard deviation of the return asa percentage over the coming year.

c. If the risk-free return is 7 percent, what is the risk premium for a stock market investment?

Reference no: EM13338448

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