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Problem 1. (10 points) Given the following scenarios for the possible states of the market next period with their associated probabilities of occurring, and the
Problem 1. (10 points) Given the following scenarios for the possible states of the market next period with their associated probabilities of occurring, and the hypothetical end-of-period prices for shares of the ABC Corporation, Scenario Probability End-of-period price per share ($) Optimistic 0.4 115 Neutral 0.5 105 Pessimistic 0.1 90 and assuming a current price of $100 per share: a) Calculate the rate of return for each scenario. b) What is the expected return? The variance of end-of-period returns
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