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expected return

Practice Problem 11-16 Scenario Analysis (LO3)
The common stock of Escapist Films sells for $30 a share and offers the following payoffs next year:
Dividend Stock Price
Boom 1 $ 20
Normal economy $2 29
Recession 5 36
Calculate the expected return and standard deviation of Escapist. All three scenarios are equally likely. Then calculate the expected return and standard deviation ofa portfolio half invested in Escapist and half in Leaning Tower of Pita. Show that the portfolio standard deviation is lower than either stock's.
The common stock of Leaning Tower of Pita, Inc., a restaurant chain, will generate the following payoffs to investors next year:
Dividend Stock Price
Boom 5 190
Normal economy 2 102
Recession $ 0 $ 0
The company goes out of business if a recession hits. Calculate the expected rate of return and standard deviation of return to Leaning Tower of Pita shareholders.Assume for simplicity that the three possible states of the economy are equally likely. The stock is selling today for $88.

what is the Portfolio Rate of Return
Expected return %
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