ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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You plan to invest $1,000 in a corporate bond fund or in a common stock fund. The following table represents the annual return (per $1,000) of each of these investments under various economic conditions and the probability that each of those economic conditions will occur.

Compute the expected return for the corporate bond and for the common stock fund. Show your calculations on excel for expected returns. 

Compute the standard deviation for the corporate bond fund and for the common stock fund. 

Would you invest in the corporate bond fund or the common stock fund? Explain. 

If  choose to invest in the common stock fund and in (c), what do you think about the possibility of losing $999 of every $1,000 invested if there is depression. Explain.

Probability Economic
Condition
Corporate
Bond fund
Common
Stock fund
0.01
depression
-200
- 999
0.09
recession
-70
-300
0.15
recovery
30
-100
0.35
slow growth
80
100
0.30
moderate growth
100
150
0.10
high growth
120
350
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Transcribed Image Text:Probability Economic Condition Corporate Bond fund Common Stock fund 0.01 depression -200 - 999 0.09 recession -70 -300 0.15 recovery 30 -100 0.35 slow growth 80 100 0.30 moderate growth 100 150 0.10 high growth 120 350
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