The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-year price depend on the state of economy by the end of the year as follows: Boom Normal economy Recession Expected return Standard deviation Dividend $ 2.80 1.80 0.90 Stock Price $ 48 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 43 34 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 5%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) % %

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
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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
Expected return
Standard deviation
Dividend
$ 2.80
1.80
0.90
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
Stock Price
$ 48
43
34
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 5%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
%
%
Transcribed Image Text: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 Expected return Standard deviation Dividend $ 2.80 1.80 0.90 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 Stock Price $ 48 43 34 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 5%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) % %
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