Problem 5-6

The stock of Business Adventures sells for $35 a 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

$1.20

$45

Normal economy

1.20

38

Recession

.60

26

Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 4%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)