Question
You are considering purchasing shares of DeltaCad Inc. for $40/share. Your analysis of the company and the economy produce the following oneyear scenarios with equally
You are considering purchasing shares of DeltaCad Inc. for $40/share. Your analysis of the company and the economy produce the following oneyear scenarios with equally likely outcomes:
| State of the economy | Dividend (D1) | Price (P1) |
| Boom | $1.40 | $51.00 |
| Average | $0.75 | $43.00 |
| Bust | $0.00 | $33.00 |
Stave Four Enterprises is currently selling for $27 per share. You have an analyst report with the
following forecast:
| Probability | State of the economy | Dividend (D1) | Price (P1) |
| 10% | Boom | $2.00 | $35.00 |
| 30% | Good | $1.25 | $31.50 |
| 40% | Likely | $1.00 | $29.00 |
| 2% | Poor | $0.25 | $22.25 |
Calculate the mean and standard deviation of the expected return. Which appears to be a betterpotential investment, Stave Four or DeltaCad?
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Core Concepts Of Accounting Information Systems
Authors: Nancy A. Bagranoff, Mark G. Simkin, Carolyn Strand Norman
11th Edition
9780470507025, 0470507020
