Question
In one year the economy will either be weak, normal or strong. The respective probabilities of these three outcomes are 0.33 for weak, 0.45 for
In one year the economy will either be weak, normal or strong. The respective probabilities of these three outcomes are 0.33 for weak, 0.45 for normal, and for strong you must determine it. Three primitive securities exist that will each pay out $100 in one year depending on the state of the economy. The primitive that pays out in the weak economy has price today of $41.45. The primitive that pays out in the normal economy has price today of $38.47. The primitive that pays out in the strong economy has price today of $9.43.Determine the expected return of the market index that will have payout in one year of $599 if the economy is weak, $945 if the economy is normal, and $1,279 if the economy is strong; enter your expected return result in the space provided. Answer in % to four decimal places, do not include '%' in your answer (e.g., 12.1234).
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