Question

In: Finance

1) The current stock price for Ford is $31 and for Coca-cola is $66. The consensus...

1)

The current stock price for Ford is $31 and for Coca-cola is $66. The consensus predictions by Wall Street economists for the state of the economy next year and the associated stock prices are the following:

State of economy

 Probability Ford price Coke Price

Deep recession

 0.10 20 65

Mild recession

 0.25 25 72
Soft landing 0.35 38 75
Mild growth 0.20 42 80
Rapid growth 0.10 50 85

The stock prices above are given ex-dividend. Next year, Ford is expected to pay a dividend of $1.24 per share and coca-cola is expected to pay a dividend of $0.88 per share.

a) What is the expected return on Ford stock? What is the standard deviation of the rate of return on Ford stock?

b) What is the expected return on Coca-cola stock? What is the standard deviation of the rate of return on Coca-Cola stock?

c) What is the covariance between the rate of return on Ford and Coca-cola? What is the correlation coefficient between their rates of return?

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 2 hours ago
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