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You bought a share of A stock at $80 today. You plan to sell the stock in one year. You expect to receive a dividend
You bought a share of A stock at $80 today. You plan to sell the stock in one year.
You expect to receive a dividend of $1.50/share. You predict that the stock price in one year will vary with the state of the economy. In particular, you expect the following distribution of stock prices in one year:
Economy Probability Stock Price
Boom 0.20 $ 74
Normal growth 0.50 $100
Recession 0.30 $115
What is the expected return? What is the return standard deviation?
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