studoc Suppose there is uncertainty about the growth rate. With 50% probability the growth rate will be 6%, with 50% probability the growth rate will be 10%. What are the respective market values under the two growth rates

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28 May, 15:48

studoc Suppose there is uncertainty about the growth rate. With 50% probability the growth rate will be 6%, with 50% probability the growth rate will be 10%. What are the respective market values under the two growth rates

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Mariam Farley · Answer 1

Given there is uncertainty about the growth rate, the respective market values under the two growth rates is the weighted average rate of growth, which is: 50% x 6% + 50% x 10% = 8%.