In this problem we will use Figure to estimate the expected return on the stock market. To
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Figure shows that four out of 111 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 4/111 or about 3.6%. Fill in the missing values in the table and then fill in the missing parts of the equation to calculate the expected return.
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...
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Related Book For
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart
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