Question: Example 1 OEU = EPS. (rs- ElRen) / The current price of Electronics Unlimited (EU) stock is $100 and you have the following expectations for

Example 1 OEU = EPS. (rs- ElRen) / The current price of Electronics Unlimited (EU) stock is $100 and you have the following expectations for it next year: PS. State of the economy Probability EU's stock price rs Stagnation 20 $90 - 0. 10 Slow growth .60 $105 0.05 0.35 Boom .20 $120 (a) Based on this information, what rate of return do you expect? What is the standard deviation of this rate of return? ECREW) = I PS. VS = 0.05 Additionally, you have the following return expectations on Seagram's stock in one Z year: VS Psirs Is - [ [ Ren ) State of the economy Probability Seagram's return 10. 04 2 Stagnation 20 6% Slow growth 60 C 0% O -0-016 Boom 20 3% 0.00 6 (b) What is the expected rate of return and standard deviation of the rate of return PS . (rs- ElRey on this stock? Is there more uncertainty or less uncertainty with Seagram as opposed to EU? - ( REN ) = [PS.15 0.016 6 = 020240 (c) (Only for discussion of concepts) How closely is EU's stock associated to Seagram's? How successful will investors be in reducing uncertainty by investing in a portfolio of both EU and Seagram stock

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