In: Finance
Suppose stock X has a price of $100 today. There are three possible scenarios one year later as detailed below. Let R denote the one-year return of stock X (today to one year later).
Scenario 1 Probability 20% Stock price $80 Dividend $0
Scenario 2 Probability 50% Stock price $105 Dividend $140
Scenario 3 Probability 0% Stock price $5 Dividend $5
Calculate: (a) R in each of these three scenarios. 1 (b) The volatility of R
In Scenerio 3.Probability should be 30% in my opinion so I have solved the Question accordingly.If its not let me know in comment section,I will do it again with Probability 0%.
Formulae used-
1.Holding period return = (Price at year end +dividend -Price at year beginning)/Price at year beginning
2.Standard deviation= sqrt(Variance)
3.Expected Return = Sum of ( Holding period returns*Probability)
4.Variance = Sum of ((Holding period return -Expected return)^2*Probability)
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