Mobile Hairdressers has a share price of $5 today. There are three possible states of this stock next year. There is a 30% chance the company will have a lot of success in the next year and the stock price will rise to $16. The market could expand leading to a price of $9 per share with a probability of 35%.

There is also a chance that company will not be a success and the share price will drop to $2. No dividends are expected. What is the expected return of the stock?

 

Suppose stocks A and B have correlation of 0.2.

Stock A has expected volatility of 15%. 

Stock B has expected volatility of 20%. 

Which is closest to the expected volatility of a portfolio that is 60% stock A and 40% stock B?

Answer rating: 100% (QA)

To calculate the expected return of the Mobile Hairdressers stock we first need to calculate the exp... View the full answer