Problem 5-6

The stock of Business Adventures sells for $54 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	$ 2.00	$ 64
Normal economy	1.00	57
Recession	0.50	48

Required:

(a)	Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

Expected return	%
Standard deviation	%

(b)	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 11%. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

Expected return	%
Standard deviation	%