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Suppose your expectations regarding the stock market are as follows: Use above equations to...

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Finance

Suppose your expectations regarding the stock market are as follows:

image

Use above equations to compute the mean and standard deviation of the HPR on stocks.

Mean = ?%

Standard deviation = ?%

State of the Economy Boom Normal growth Recession Probability 0.3 0.4 0.3 HPR 42% 15 -18 E(r) = p(s)r(s) ( s=1 S Var(r) = o2 = ( [r(s) E(r)] S=1 SD(r) = 0 = VVar (r)

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