# Question

In this problem we will use Figure 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 6.5 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 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.

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.

## Answer to relevant Questions

Here are the nominal returns on stocks, bonds, and bills for the 1920s and 1930s. For each decade, calculate the standard deviation of returns for each asset class. How do those figures compare with more recent numbers for ...In this problem you will generate a graph similar to Figure. The table below shows the standard deviation for various portfolios of stocks listed in Table 6.5. Plot the relationship between the number of stocks in the ...A stock has a beta equal to 1.0. Is the standard deviation of the stock equal to the standard deviation of the market? Victoria Goldman is a financial advisor who manages money for high net worth individuals. For a particular client, Victoria recommends the following portfolio of stocks. a. Calculate the portfolio weights implied by Ms. ...The risk-free rate is currently 5%, and the expected risk premium on the market portfolio is 7%. What is the expected return on a stock with a beta of 1.2?Post your question

0