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Scenario Analysis and Portfolio Risk. The common stock of Leaning Tower of Pita Inc., a restaurant chain, will generate payoffs to investors next year, which

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Scenario Analysis and Portfolio Risk. The common stock of Leaning Tower of Pita Inc., a restaurant chain, will generate payoffs to investors next year, which depend on the state of the economy, as follows: Dividend Boom Normal economy Recession $8 4 Stock Price $240 90 0 a. The company goes out of business if a recession hits. Calculate the expected rate of return and standard deviation of return to Leaning Tower of Pita shareholders. Assume for simplicity that the three possible states of the economy are equally likely. The stock is selling today for $80. b. Who would view the stock of Leaning Tower of Pita as a risk-reducing investmentthe owner of a gambling casino or a successful bankruptcy lawyer? Explain

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