# Question: In this problem we will use Fig to estimate the

In this problem we will use Fig to estimate the expected return on the stock market. To estimate the expected return, we will create a list of possible returns and we will assign a probability to each outcome. To find the expected return, you simply multiply each possible return by the probability that it will occur, and then add up across outcomes. Notice that Figure divides the range of possible returns into intervals of 10 percent (except for very low or very high outcomes). Let us create a list of potential future stock returns by taking the midpoint of the various ranges as follows:

Figure shows that four out of 107 years had returns of between −20% and −30%. So let us capture this fact by assuming that if returns do occur inside that interval that the typical return would be −25% (in the middle of the interval). The probability associated with this outcome is 4/107 or about 3.7%. Fill in the missing values in the table and then fill in the missing parts of the equation to calculate the expected return.

Figure shows that four out of 107 years had returns of between −20% and −30%. So let us capture this fact by assuming that if returns do occur inside that interval that the typical return would be −25% (in the middle of the interval). The probability associated with this outcome is 4/107 or about 3.7%. Fill in the missing values in the table and then fill in the missing parts of the equation to calculate the expected return.

**View Solution:**## Answer to relevant Questions

A financial adviser claims that a particular stock earned a total return of 10 percent last year. During the year the stock price rose from $30 to $32.50. What dividend did the stock pay? The U.S. stock market hit an all-time high in October 1929 before crashing dramatically. Following the market crash, the U.S. entered a prolonged economic downturn dubbed The Great Depression. Using Figure, estimate how long ...Why is the standard deviation of a portfolio typically less than the weighted average of the standard deviations of the assets in the portfolio, while a portfolios beta equals the weighted average of the betas of the stocks ...Why do managers focus on the effect that an investment will have on reported earnings rather than on the investments cash flow consequences? Under what circumstance is the use of the equivalent annual cost (EAC) method to compare substitutable projects with different lives clearly more efficient computationally than using multiple investments over a common period ...Post your question