Suppose your expectations regarding the stock market are as follows: State of the Economy Probability Boom 0.4 Normal growth 0.4 Recession 0.2 HPR 418 15 -19 E() = P(5)r() s=1 Var(r) = y2 = p()[r(s) E(r)]2 S=1 SD(Y) = o = VVar(7) Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Mean % % Standard deviation The stock of Business Adventures sells for $60 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: Boom Normal economy Recession Dividend $2.00 1.50 0.70 Stock Price $73 63 59 a. 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.) 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 4%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return % Standard deviation % XYZ stock price and dividend history are as follows: Year 2015 2016 2017 2018 Beginning-of-Year Price $106 101 89 94 Dividend Paid at Year-End $ 5 5 5 5 An investor buys three shares of XYZ at the beginning of 2015, buys another two shares at the beginning of 2016, sells one share at the beginning of 2017, and sells all four remaining shares at the beginning of 2018. a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Arithmetic mean Geometric mean % % b-1. Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2015, to January 1, 2018. (Negative amounts should be indicated by a minus sign.) Cash Flow Date 01/01/2015 01/01/2016 01/01/2017 01/01/2018 b-2. What is the dollar-weighted rate of return? (Hint: If your calculator cannot calculate internal rate of return, you will have to use a spreadsheet or trial and error.) (Negative value should be indicated by a minus sign. Round your answer to 4 decimal places.) Rate of return %