Posted: September 16th, 2017

The stock of Business Adventures sells for $35 a share. Its likely dividend payout

1) The stock of Business Adventures sells for $35 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 $1.20 $45
Normal economy 1.20 38
Recession .60 26

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.)

Expected return %
Standard deviation %

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 4%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Expected return %
Standard deviation %

2) Using the Table 5.4 as your guide, what is your estimate of the expected annual HPR on the S&P 500 stock portfolio if the current risk-free interest rate is 5.3%? (Round your answer to 2 decimal places

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