The stock of Business Adventures sells for $60 a share. Its likely dividend payo

Question

The stock of Business Adventures sells for $60 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Dividend Stock price Boom $2.00 $73 Normal economy 1.50 63 Recession .70 59 a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return % Standard deviation % b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 4%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return % Standard deviation %

Explanation / Answer

Business Adventures Dividend Stock Price Boom 2 73 Normal 1.5 63 Recession 0.7 59 The stock of business adventure sells for $60 The Holding Period Return for three Scenarios are Boom 0.25 25 % Normal 0.075 7.5 % Recession -0.005 -0.5 % Expected Holding Period 10.67 % Standard deviation of the holding Period Boom 68.44963 Normal 3.349633 Recession 41.58963 Total 113.3889 Standard Devation= ?113.3889 10.64

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