In this problem, use Figure 6.5 to estimate the expected return on the stock market. To estimate the expected return, create a list of possible returns and assign a probability to each outcome. To fi...

In this problem, use Figure 6.5 to estimate the expected return on the stock market. To estimate the expected return, create a list of possible returns and assign a probability to each outcome. To fi nd the expected return, multiply each possible return by the probability that it will occur and then add up across outcomes. Notice that Figure 6.5 divides the range of possible returns into intervals of 10 percent (except for very low or very high outcomes). Create a list of potential future stock returns by taking the midpoint of the various ranges as follows: Possible Stock Returns (%) 35 25 15 5 5 15 25 35 45 55 ____ 2 106 ____ 4 106 ____ 3 106 ____ 2 106 Expected return =  ____ 2 106 (35)   ____ 4 106 (25)  . . . .   ____ 3 106  (45)   ____ 2 106 (55)  ? Figure 6.5 shows that four years out of 106 had returns of between –20% and –30%. Let us capture this fact by assuming that if returns do occur inside that interval that the typical return would be –25% (in the middle of the interval). The probability associated with this outcome is 4/106 or about 3.8%. Fill in the missing values in the table and then fi ll in the missing parts of the equation to calculate the expected return.