Question

The stock of Business Adventures sells for $70 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	$78
Normal economy	1.30	75
Recession	0.90	60

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.)

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 5%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1