2. Answer both questions: a. You purchase 100 shares of stock for $40 a share. The stock pays a $2 per share dividend at year-end. What is the rate of return on your investment if the year-end stock prices turn out to be $38, $40, and $42? What is your real (inflation-adjusted) rate of return in each case, assuming an inflation rate of 3%? b. Consider the following information on the returns on stock and bond investment. Scenario Probability Stocks Bonds Recession .2 -5% +14% Normal economy .6 +15% +8% Boom .2 +25% +4% i. ii. Calculate the expected rate of return and standard deviation in each investment. Do your results support or contradict the historical record on the relationship between risk and return in the financial market in both Canada and the United States? Which investment would you prefer? Explain your answer. iii. 2. Answer both questions: a. You purchase 100 shares of stock for $40 a share. The stock pays a $2 per share dividend at year-end. What is the rate of return on your investment if the year-end stock prices turn out to be $38, $40, and $42? What is your real (inflation-adjusted) rate of return in each case, assuming an inflation rate of 3%? b. Consider the following information on the returns on stock and bond investment. Scenario Probability Stocks Bonds Recession .2 -5% +14% Normal economy .6 +15% +8% Boom .2 +25% +4% i. ii. Calculate the expected rate of return and standard deviation in each investment. Do your results support or contradict the historical record on the relationship between risk and return in the financial market in both Canada and the United States? Which investment would you prefer? Explain your