You currently have a portfolio invested $40$ percent in a corporate bond and the remainder invested in a share of stock of the XYZ Company. As of today, the bond is selling for $$957\mathrm{.}24,$ matures in $8\mathrm{.}2$ years and pays a semiannual coupon of $$32.$ The stock currently is priced at $$25$ per share and pays a constant annual dividend of $$2\mathrm{.}35.$ Assume there are three possible states the economy can take over the course of the coming year:

Bust economy $$ there is a $15$ percent chance this state outcome will occur over the coming year. If so$,$ the bond$$s yield to maturity $($YTM$)$ will decline by $10$ percent and the stock$$s required return is expected to increase by $10$ percent.

Normal economy $$ there is a $60$ percent chance this state outcome will occur over the coming year. If so$,$ the bond$$s YTM is expected to remain at what it currently is and the stock$$s required return is expected to decline by $2$ percent.

Boom economy $$ there is a $25$ percent chance this state outcome will occur over the coming year. If so$,$ the bond$$s YTM is expected to increase by $20$ percent and the stock$$s required return is expected to decline by $10$ percent.

Based upon the above information, answer the following:

a$.$ Compute the expected price of both securities under each of the three state outcomes. Use the table format below to provide your final answers.

Bond

Current Bust Normal Boom

YTM

Price $$957\mathrm{.}24$

Stock

Current Bust Normal Boom

Req. Return

Price $$25\mathrm{.}00$

b$.$ Based off the expected prices computed in question a$,$ compute the expected return of both securities under each of the three state outcomes. Use the table format below to provide your final answers.

Probability

Bond $(40\%)$

Stock $(60\%)$

Bust $15\%$

Normal $60\%$

Boom $25\%$

c$.$ Compute the expected return you would earn on your portfolio over the coming year.

d$.$ Will you earn the expected return you computed in part c above? If not, then what return will you actually earn?