Kasandra has purchased 1,000 shares in ABC Ltd for $40 each. Her analysis suggests that the following four states of the economy with respective probabilities can affect the price of the share next year. She also expects to receive a dividend of $2 per share next year. States of economy Probability Price Boom 10% $50 Good 30% $48 Normal 40% $42 Recession 20% $30 a) For each scenario above, calculate the total holding period return for Kasandra. Calculate the expected return from this investment considering all scenarios. Round your answer to the nearest 0.01%. b) Calculate the total risk of this investment. Round your answer to the nearest 0.01%. /
Kasandra has purchased 1,000 shares in ABC Ltd for $40 each. Her analysis suggests that the following four states of the economy with respective probabilities can affect the price of the share next year. She also expects to receive a dividend of $2 per share next year. States of economy Probability Price Boom 10% $50 Good 30% $48 Normal 40% $42 Recession 20% $30 a) For each scenario above, calculate the total holding period return for Kasandra. Calculate the expected return from this investment considering all scenarios. Round your answer to the nearest 0.01%. b) Calculate the total risk of this investment. Round your answer to the nearest 0.01%. /
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question 6
Answer parts a), b) and c) based on the information below:
Kasandra has purchased 1,000 shares in ABC Ltd for $40 each. Her analysis suggests that the following four states
of the economy with respective probabilities can affect the price of the share next year. She also expects to receive
a dividend of $2 per share next year.
States of economy
Probability
Price
Boom
10%
$50
Good
30%
$48
Normal
40%
$42
Recession
20%
$30
a) For each scenario above, calculate the total holding period return for Kasandra. Calculate the expected
return from this investment considering all scenarios. Round your answer to the nearest 0.01%.
b) Calculate the total risk of this investment. Round your answer to the nearest 0.01%. /
Transcribed Image Text:c) In addition to the above shares in ABC Ltd, Kasandra purchases some shares in XYZ Ltd for $60,000 with
an expected return of 12% for the next year. What would be the expected return on her total investment if
there is no other asset in her portfolio? Round your answer to the nearest 0.01%.
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