Question

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: Dividend Stock Price Boom $2.00 $70 Normal economy 1.80 63 Recession 0.90 54 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.) 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 5%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

(a)

Holding Priod Return =

P0= Current price

P1 = End price

D = Dividend

expected holding-period return =

HPR = holding period return on each circumstances

Probability = Probability of circumstances

standrad deviation =

(b)

Expected retun On the portfolio =

Standrad deviation of the portfolio having one risky assets and one Non risky asset = = Standard deviation of Risky asset*Weight of risky asset.

Business Adventures is the Risky asset

Treasury bills is non riksy asset and its risk or standarf deviation is 0.