Currently the level of the S&P 500 Index is 1300, and the yield on the 90-day treasury
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Question:
Currently the level of the S&P 500 Index is 1300, and the yield on the 90-day treasury bill is 2.75%. The following table lists the forecasts of an economist for the S&P 500 in the coming year.
Economic Environment | Probability of Occurance | Expected return of the S&P |
Above Average | 30% | 22% |
Average | 45% | 8% |
Poor | 25% | -35% |
Calculate the expected return and standard deviation for the S&P 500. Construct the Security Market Line graph (from your findings) and show what the market risk premium is. Label your graph to receive full credit.
What would happen to the expected return on stocks if investors perceived an increase in the volatility of stocks? Why?
Related Book For
Statistics Principles and Methods
ISBN: 978-0470904114
7th edition
Authors: Richard A. Johnson, Gouri K. Bhattacharyya
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