Question

Suppose your expectations regarding the stock market are as follows: Probability HP State of the Economy Boom 42% 23 0.2 Normal growth Recession Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculationsR answers to 2 decimal places Mean Standard deviation
The stock of Business Adventures sells for $25 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 $1.50 1,10 Normal economy invested half in Business Adventures and half in Treasury bil s The return on bils is 3%. Do not round inte mediate b. Calculate the expected retum and standard deviation of a porti i calculations. Round your answers to 2 decimal places.)
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Answer #1

ANGWER 1 R. Recess ia 42 x 0.23x 0.6-17 0.2 [13.8 y] [-3.4%] 12.20 .| RetuanS 2 2 42 23.538.24 0.2 107. 648 23 4.2 10. 584 35ANSWER 2 (a) Caltulatim fspuctd Ralun Step1: Calculate Expactid Dividknd to bi hecuivid xpected biridand í Dividtnd x obobiliER= Expected bividend + (expected Stock phice- CuDant Dice. X 100 1.045 28.59 25 X 100 25 1.045t 25 18.81% Caltulation of StaHPR = Dividend t (Exp. Ace-CwentPnrce Nomal to non 25 24,4 % HPR Recession 0.55 +(21-25) x 10 25 3.8 18 21 MPR 2 X- X hobabiiANSwER2 (b) Since Qmt. invested is Equal [18.87% x 0.5) t [3% x o.5] -10.94% → Std.DLui ation.of Pat olio = Std.BeviaKon of

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