Suppose your expectations regarding the stock market are as follows: 1 State of the Economy Boom...

 

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Suppose your expectations regarding the stock market are as follows: 1 State of the Economy Boom Normal growth Recession E(T) = P(s)T(S) Probability HPR 0.2 37% 0.5 17 0.3 -11 Var (r) = 0 =P (s)[r(s) - E (r)] SD (r) = Var (7) Required: Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Answer is complete but not entirely correct. Mean Standard deviation 12.00% 16.82% 2 The stock of Business Adventures sells for $35 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Dividend Stock Price Boom $ 2.50 Normal economy Recession 2.00 8.85 $ 43 40 31 Required: a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Expected return Standard deviation % % b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 3%. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Expected return Standard deviation 96 % Suppose your expectations regarding the stock market are as follows: 1 State of the Economy Boom Normal growth Recession E(T) = P(s)T(S) Probability HPR 0.2 37% 0.5 17 0.3 -11 Var (r) = 0 =P (s)[r(s) - E (r)] SD (r) = Var (7) Required: Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Answer is complete but not entirely correct. Mean Standard deviation 12.00% 16.82% 2 The stock of Business Adventures sells for $35 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Dividend Stock Price Boom $ 2.50 Normal economy Recession 2.00 8.85 $ 43 40 31 Required: a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Expected return Standard deviation % % b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 3%. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Expected return Standard deviation 96 %