Question: Example 1 Ofu - N E PS . ( PS - El Ren) The current price of Electronics Unlimited (EU) stock is $100 and you

Example 1 Ofu - N E PS . ( PS - El Ren) 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 Boom 20 $120 0. 2x (a) Based on this information, what rate of return do you expect? What is the standard deviation of this rate of return? ECREW ) = EPS.vs = 0.05 Additionally, you have the following return expectations on Seagram's stock in one year: VS State of the economy Probability Psirs rs - Seagram's return Stagnation 20 6% Slow growth 60 0% O Boom .20 3% (b) What is the expected rate of return and standard deviation of the rate of return PS on this stock? Is there more uncertainty or less uncertainty with Seagram as opposed to EU? + (REM)= [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? 6EM

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