A B C D E F G H I 1 2 3 Purchase Price = $100 4 5 T-Bill Rate= 0.04 Squared 6 State of the Year-End Cash Deviations Deviations Excess Squared Deviations 7 Economy Probability Price Dividends HPR from Mean from Mean Returns from Mean 8 Boom 0.25 126.50 4.50 0.3100 0.2124 0.0451 0.2700 0.0451 9 Normal growth 0.45 110.00 4.00 0.1400 0.0424 0.0018 0.1000 0.0018 10 Mild recession 0.25 89.75 3.50 -0.0675 -0.1651 0.0273 -0.1075 0.0273 11 Severe recession 0.05 46.00 2.00 -0.5200 -0.6176 0.3815 -0.5600 0.3815 12 Expected Value (mean) SUMPRODUCT(B8:B11, E8:E11) = 0.0976 13 Varlance of HPR SUMPRODUCT(B8:B11, G8:G11) = 0.0380 14 Standard Deviation of HPR 15 Risk Premium 16 Standard Deviation of Excess Return SQRT(G13) = SUMPRODUCT(B8:B11, H8:H11) = SQRT(SUMPRODUCT(B8:B11, 18:111) = 0.1949 0.0576 0.1949 You are faced with the probability distribution of the HPR on the stock market index fund given in Spreadsheet 5.1 of the text. Suppose the price of a put option on a share of the index fund with exercise price of $110 and time to expiration of 1 year is $12, and suppose the risk-free interest rate is 6% per year. You are contemplating investing $107.55 in a 1-year CD and simultaneously buying a call option on the stock market index fund with an exercise price of $110 and expiration of 1 year. What is the probability distribution of your dollar return at the end of the year? (Round your answers to 2 decimal places.) State of the Economy Probability Ending Value of CD Ending Value of Call Combined Value Excellent 0.25 Good 0.45 Poor 0.25 Crash 0.05