The stock of Business Adventures sells for $30 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 |
$2.80 |
$38 |
| Normal economy |
1.60 |
32 |
| Recession |
.80 |
16 |
|
a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely.
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%.
Expected return %
Standard deviation %