Question: State of the world Probability Security Returns X Security Returns Market Boom .30 .25 .15 Normal .40 .07 .10 Recession .30 .03 .05 E(R x

State of the world	Probability	Security Returns X	Security Returns Market


Boom	.30	.25	.15
Normal	.40	.07	.10
Recession	.30	.03	.05
		E(R_x).112	E(R_Mkt).10
		=.008436	=.0015

Is this distribution symmetrical? Calculate the covariance. Calculate the variance of the portfolio made up of 30% X and 70% of the Market. Find the Beta for the firm. Find the correlation coefficient. What does the beta measure?

Assuming the beta calculated above, and assuming E(RM) = 12%; Rf= 8% Find the price of a stock that paid a dividend of $3.00. Assume that the stock will grow at 4% for the next 5-years. Thereafter the growth rate is expected to be a negative 3%.

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