a) You have been given this probability distribution for the holding-period return for the GM stock, which has an expected return of 15%: State of the economy Probability HPR Boom 0.35 25% Normal Growth 0.40 14% Recession 0.25 -12% What is the standard deviation for GM stock? [20 marks] b) i) The GM stock is expected to generate an end-of-period dividend of $5. This security has a beta coefficient of 1.3 and the risk-free interest rate is 10%. Knowing that the risk premium on the market is 6.5 % and using the expected rate of return from a) conclude if the GM stock is fairly priced. Draw and use the SML CAPM pricing line to justify your answer [15 marks] ii) What strategy should an investor follow regarding the GM stock? (Word limit: maximum 100 words). [5 marks] c) You purchased 250 shares of GM common stock on margin at $70 per share. Assume the initial margin is 50%, and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin. [20 marks] a) You have been given this probability distribution for the holding-period return for the GM stock, which has an expected return of 15%: State of the economy Probability HPR Boom 0.35 25% Normal Growth 0.40 14% Recession 0.25 -12% What is the standard deviation for GM stock? [20 marks] b) i) The GM stock is expected to generate an end-of-period dividend of $5. This security has a beta coefficient of 1.3 and the risk-free interest rate is 10%. Knowing that the risk premium on the market is 6.5 % and using the expected rate of return from a) conclude if the GM stock is fairly priced. Draw and use the SML CAPM pricing line to justify your answer [15 marks] ii) What strategy should an investor follow regarding the GM stock? (Word limit: maximum 100 words). [5 marks] c) You purchased 250 shares of GM common stock on margin at $70 per share. Assume the initial margin is 50%, and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin. [20 marks]