Assume that the economy can experience four possible states: high growth, normal growth, recession, or depression. For
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Question:
Assume that the economy can experience four possible states: high growth, normal growth, recession, or depression. For each of those states, you expect the following stock market returns for the coming year:
State of the Economy | Probability | Return |
High Growth | 0.2 | 60% |
Normal Growth | 0.6 | 18% |
Recession | 0.15 | -2% |
Depression | 0.05 | -7% |
In dollar terms, what is the value at risk (over a one-year horizon at a 5 percent probability) associated with a $1,000 investment?
The value at risk: $
Related Book For
Money Banking and Financial Markets
ISBN: 978-0078021749
4th edition
Authors: Stephen Cecchetti, Kermit Schoenholtz
Posted Date: