Suppose International Trading Companys stock returns follow a normal distribution with a mean of 17.5 percent and
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Question:
- Suppose International Trading Company’s stock returns follow a normal distribution with a mean of 17.5 percent and a standard deviation of 8.5 percent. What is the range of returns in which about 95 percent of International Trading’s stock returns are located?
2. The returns on the market of common stocks and on Treasury bills are contingent on the economy as follows.
Economic Condition | Probability | Market Return | Treasury Bills |
Recession | 0.25 | -8.2% | 3.5% |
Normal | 0.50 | 12.3 | 3.5 |
Boom | 0.25 | 25.8 | 3.5 |
a. Calculate the expected returns on the market and Treasury bills.
b. Calculate the expected risk premium.
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