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Additional Turn-in Problem 2 (Scenario Analysis) GE is currently traded at $25 per share. The following is a scenario analysis for its future share price
Additional Turn-in Problem 2 (Scenario Analysis) GE is currently traded at $25 per share. The following is a scenario analysis for its future share price in one year Probability, p(s) Share price Dividends Scenario, s GDP23% 3%> GDP21% 1%> GDP>0% 0%> GDP>-1% 0.60 0.10 0.04 0.01 $30.00 $26.50 $19.50 $17.50 $12.50 $2.00 $1.00 $0.50 $0.00 $0.00 1%> GDP 1. The probability for the first scenario is missing, what is its value? 2. Compute the holding period return (HPR) for each scenario 3. Compute the expected return and volatility, and then the "reward-to-volatility" or Sharpe ratio for GE based on this scenario analysis. Assume that the T-bill rate is 1% Additional Turn-in Problem 3 (Expected Return and Realized Return) What is the difference between expected return and realized return? Which one is directly relevant for investment decision? What is the the risk premium
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