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Currently the level of the S&P 500 Index is 1300, and theyield on the 90-day treasury bill is 2.75%. The following tablelists the forecasts of an economist for the S&P 500 in thecoming year.Economic EnvironmentProbability of OccuranceExpected return of the S&PAbove Average30%22%Average45%8%Poor25%-35%Calculate the expected return and standard deviation for theS&P 500. Construct the Security Market Line graph (from yourfindings) and show what the market risk premium is. Label yourgraph to receive full credit.What would happen to the expected return on stocks if investorsperceived an increase in the volatility of stocks? Why?
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