Ima is considering a purchase of Wallnut Company stock. Using the same scenarios and probabilities as in problem 10, she estimates Wallnut’s return is -5% in a recession, 20 percent in constant growth, and 10% in inflation.
a) What is Ima’s expected return forecast for Wallnut stock?
b) What is the standard deviation of the forecast?
c) If Wallnut’s current price is $20 a share and is expected to pay a dividend of $0.80 a share next year, what price does Ima expect Wallnut to sell for in one year?

  • CreatedMarch 27, 2015
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