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:

State of the Economy	Probability	Return
High Growth	0.2	45%
Normal Growth	0.7	20%
Recession	0.1	-4%

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 the nearest tenth (1 decimal place).

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 percent, what is the risk premium for a stock market investment?

Risk premium = %.