Question

. Suppose you purchase a stock for $100. Assume your expectations regarding the stock price are as follows:

State of the Economy |
Probability |
Year end price |
Cash dividends |
Holding period return(HPR) |

Boom |
0.3 |
129.50 |
4.50 |
0.34 |

Normal growth |
0.5 |
110.00 |
4.00 |
0.14 |

Recession |
0.2 |
80.50 |
3.50 |
-0.16 |

Compute the Mean and standard deviation of the HPR on stocks.

Answer #1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Suppose your expectations regarding the stock market are as
follows:
State of the Economy
Probability
HPR
Boom
0.3
44%
Normal growth
0.6
22
Recession
0.1
-15
Use above equations to compute the mean and standard deviation of
the HPR on stocks. (Do not round intermediate calculations.
Round your answers to 2 decimal places.)

Suppose your expectations regarding the stock market are as
follows:
State of the Economy
Probability
HPR
Boom
0.3
44%
Normal growth
0.6
22
Recession
0.1
-15
Use above equations to compute the mean and standard deviation of
the HPR on stocks. (Do not round intermediate calculations.
Round your answers to 2 decimal places.)
Mean
%
Standard deviation
%

Suppose your expectations regarding the stock market are as
follows:
State of the Economy
Probability
HPR
Boom
0.3
44%
Normal growth
0.6
22
Recession
0.1
-15
Use above equations to compute the mean and standard deviation of
the HPR on stocks. (Do not round intermediate calculations.
Round your answers to 2 decimal places.)
mean?
standard deviation?

Suppose your expectations regarding the stock market are as
follows:
State of the Economy
Probability
HPR
Boom
0.3
44%
Normal growth
0.4
14
Recession
0.3
-16
Use the above forecasted distribution to compute the expected
return of the stock market. (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
Another analyst has different opinions regarding the
probablities of Boom and Recession states. (She agrees with you on
all the other numbers in the table.)
You know that...

Suppose an economy has three states: boom, normal, and
recession. Assume that the probability of a boom state is 0.2, a
normal state is 0.5, and a recession state is 0.3. And there are
three stocks in this economy, called Alpha, Beta, and Gamma
respectively. The return performance of these stocks has been
summarized by the following table:
Alpha
Beta
Gamma
boom
15%
28%
1%
normal
6%
12%
3%
recession
-12%
-30%
20%
(Please show your intermediate processes, instead of...

You have been given this probability distribution for the
holding-period return for GM stock:
Stock of the Economy
Probability
HPR
Boom
0.40
30
%
Normal growth
0.40
11
%
Recession
0.20
–
10
%
What is the expected variance for GM stock?
Select one:
a. 200.00%
b. 221.04%
c. 246.37%
d. 14.87%
e. 16.13%

The stock of XYZ sells for $75 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
$2.50
$83
Normal economy
1.30
77
Recession
0.75
65
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.)

the stock of Business Adventures sells for $40 a share. 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 50
Normal economy 1.00 43
Recession 0.50 34
a. Calculate the expected holding-period return and standard
deviation of the holding- period return. All three scenarios are
equally likely.
b. Calculate the expected return and standard deviation of a
portfolio invested half in Business Adventures...

There are two stocks in the market, stock A and stock B. The
price of stock A today is $80. The price of stock A next year will
be $68 if the economy is in a recession, $88 if the economy is
normal, and $100 if the economy is expanding. The probabilities of
recession, normal times, and expansion are 0.2, 0.6, and 0.2,
respectively. Stock A pays no dividends and has a beta of 0.83.
Stock B has an expected...

Consider the following information about three stocks. Assume
you create your own portfolio and the weightage of the portfolio
for the following stock is as follows: 50% of stock A, 30% of stock
B and 20% of stock C.
Nigeria Economy
Probability of Happening
stock A
stock B
stock C
Expansion
0.4
26%
40%
50%
Normal
0.3
20%
30%
35%
Recession
0.3
15%
25%
10%
Required:
1) Find the portfolio expected return. (Hint: Only
one answer.)
2) Find the standard...

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