1. Given the following information, what is the standard deviation of the returns on this stock?

State of Economy	Probability of State of Economy	Rate of Return
Boom	0.20	0.21
Normal	0.70	0.13
Recession	0.10	-0.09

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Part 1

A.

0.61 percent

B.

3.60 percent

C.

20.33 percent

D.

8.80 percent

E.

7.80 percent

2. Luna, Inc. will pay an annual dividend of $3.04

next year. The company just announced that future dividends will be increasing by 2 percent annually. How much are you willing to pay for one share of this stock if you require a 14 percent return?

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Part 1

A.

$28.37

B.

$21.71

C.

$25.84

D.

$25.33

E.

$28.88