Question
After some study of the economy, your forecast for next year is that a boom economy has a 30% chance of occurring, a neutral economy
After some study of the economy, your forecast for next year is that a boom economy has a 30% chance of occurring, a neutral economy 50%, and a bust economy a 20% chance of occurring. You also estimate that a certain stock would have a return of 34% in a boom economy next year, 20% in a neutral economy , and -13% in a bust economy. The risk-free rate is 4.2%. What is the expected risk premium for this stock next year? (Answer to the nearest tenth of a percent, but do not use a percent sign). Probability Return Boom Economy 30% 34% Neutral Economy 50% 20% Bust Economy 20% -13% Risk-Free Rate = 4.2%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started