Question

Ibrahim is considering investing in two shares. Their expected returns and associated probabilities are given below:...

Ibrahim is considering investing in two shares. Their expected returns and associated probabilities are given below:

State of Economy           Probability       Returns       Returns

                                                                    A%             B%

Bad                                      0.10               (20)               30

Normal                                0.60                10                 20

Good                                   0.30               70                 50

Required

  1. Calculate the expected returns and standard deviation of A?    (10marks)
  2. Calculate the expected returns and standard deviation of B? 10marks)
  3. Frafraha ltd is expected to pay an end of year dividend of GHȼ 10 a share. After the dividend payments, its share price is expected to be GHȼ 110. Investor requires a return of 10%

Required. How much are you prepared to pay for a share?

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