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0. Today you bought 100 shares of ABC Inc. at S100 per share. A year from now ABC will pay a dividend of $2 per share for sure. The price of ABC a year from now is uncertain and depends on the state of the economy. A year from now the economy will either be in a recession, a state of "normal" growth, or a boom with probabilities of 30%, 40%, and 30% respectively. After analyzing ABC you determine that the price of ABC a year from now in these various states of the economy will be: 27 StateoftheEconom PriceofABC Recession Normal Growth Boom $80 $110 $130 What is the expected return over the next year to your investment in ABC? What is the standard deviation of that return?

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11 e 59 (V d ENG 17.14 1701 2020 E 12 OR544 ом ON 00 OP O OQ OR OR OS os or o OV ou or own 523 CALCULATION OF RETURN SCENARIO PO RECESSION 100 NORMAL 100 BOOM 100 2 2 P1 RETURN =((P1+D1-PO)/PO) 80 -18.00% 110 12.00% 130 32.00% SCENARIO PROB RETURN DEVIATION B-E(R) SQUARED DEVIATION (B-E(R))^2 532 EXPECTED RETURN RETURN AB 0.3 -18.00% 5.40% 0.40 12.00% 4.80% 0.3 32.00% 9.60% PROB *SQUARED DEVIATION A* (B- E(R))^2 2.1870% 0.0360% 1.5870% 534 RECESSION NORMAL BOOM -27.00% 3.00% 23.00% 3.00% 0.0900% 7.2900% 0.0900% 5.2900% 535 ANSWER 1 EXPECTED RETURN = 9.00% VARIANCE 3.8100% 539 ANSWER 2 STANDARD DEVIATION 19.52% [(SQRT(VARIANCE)) = SQRT(3.8100%)] 541 545 546 547 capm-portfolio retiremenil lulures margin PV, PV, ANNUITY ACC CVP KE BOND HPR REALISED YIELD NPV RAK ROE sld costing EPS%, ECONOMY, BEFORE AFTER BUYBACH ... 6 7