Question
6. The stock of Business Adventures sells for $40/share. Its likely dividend payout and end-of-year price depend on the state of the economy by the
6. The stock of Business Adventures sells for $40/share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: Dividend ($) Stock Price ($) Boom 2.00 50 Normal economy 1.00 43 Recession 0.50 34
(a) Calculate the expected holding period return and standard deviation of the holding-period return. All 3 scenarios are equally likely. (b) Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in government bonds. The return on the bonds is 4%.
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