The common stock of Escapist Films sells for $25 a share and offers the following payoffs next year: Boom Normal economy Recession Dividend $0 Stock Price $ 18 1 26 3 34 The common stock of Leaning Tower of Pita Inc. is selling for $80 and offers these payoffs next year: Boom Normal economy Recession Required: Stock Dividend Price $ 8 $240 4 90 0 0 Calculate the expected rate of return and standard deviation of a portfolio half invested in Escapist and half in Leaning Tower of Pita. All three economic scenarios are equally likely to occur. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return 42.50 % Standard deviation %

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 8P
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The common stock of Escapist Films sells for $25 a share and offers the following payoffs next year:
Boom
Normal economy
Recession
Dividend
$0
Stock
Price
$ 18
1
26
3
34
The common stock of Leaning Tower of Pita Inc. is selling for $80 and offers these payoffs next year:
Boom
Normal economy
Recession
Required:
Stock
Dividend
Price
$ 8
$240
4
90
0
0
Calculate the expected rate of return and standard deviation of a portfolio half invested in Escapist and half in Leaning Tower
of Pita. All three economic scenarios are equally likely to occur. (Do not round intermediate calculations. Round your answers
to 2 decimal places.)
Expected return
42.50
%
Standard deviation
%
Transcribed Image Text:The common stock of Escapist Films sells for $25 a share and offers the following payoffs next year: Boom Normal economy Recession Dividend $0 Stock Price $ 18 1 26 3 34 The common stock of Leaning Tower of Pita Inc. is selling for $80 and offers these payoffs next year: Boom Normal economy Recession Required: Stock Dividend Price $ 8 $240 4 90 0 0 Calculate the expected rate of return and standard deviation of a portfolio half invested in Escapist and half in Leaning Tower of Pita. All three economic scenarios are equally likely to occur. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return 42.50 % Standard deviation %
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