The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-year...

 

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The stock of Business Adventures sells for $40 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: Boom Normal economy Recession Dividend $ 2.00 1.00 0.50 Stock Price $ 50 43 34 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 4%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return Standard deviation % % Problem 5-7 (Static) XYZ stock price and dividend history are as follows: Beginning-of-Year Price Dividend Paid at Year 2018 $ 100 2019 2020 2021 110 90 95 Year-End $ 4 4 4 4 An investor buys three shares of XYZ at the beginning of 2018, buys another two shares at the beginning of 2019, sells one share at the beginning of 2020, and sells all four remaining shares at the beginning of 2021. Required: a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Arithmetic time-weighted average returns Geometric time-weighted average returns % % b-1. Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2018, to January 1, 2021. (Negative amounts should be indicated by a minus sign.) Date Cash Flow 2018 2019 2020 2021 b-2. What is the dollar-weighted rate of return? (Hint: If your calculator cannot calculate internal rate of return, you will have to use a spreadsheet or trial and error.) (Negative value should be indicated by a minus sign. Round your answer to 4 decimal places.) Rate of return % The stock of Business Adventures sells for $40 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: Boom Normal economy Recession Dividend $ 2.00 1.00 0.50 Stock Price $ 50 43 34 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 4%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return Standard deviation % % Problem 5-7 (Static) XYZ stock price and dividend history are as follows: Beginning-of-Year Price Dividend Paid at Year 2018 $ 100 2019 2020 2021 110 90 95 Year-End $ 4 4 4 4 An investor buys three shares of XYZ at the beginning of 2018, buys another two shares at the beginning of 2019, sells one share at the beginning of 2020, and sells all four remaining shares at the beginning of 2021. Required: a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Arithmetic time-weighted average returns Geometric time-weighted average returns % % b-1. Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2018, to January 1, 2021. (Negative amounts should be indicated by a minus sign.) Date Cash Flow 2018 2019 2020 2021 b-2. What is the dollar-weighted rate of return? (Hint: If your calculator cannot calculate internal rate of return, you will have to use a spreadsheet or trial and error.) (Negative value should be indicated by a minus sign. Round your answer to 4 decimal places.) Rate of return %