State of the Economy Probability HPR Boom 0.3 44% Normal Growth 0.4 14% Recession 0.3 -16% Use equations from Scenario Analysis and Probability Distributions section to compute the mean and standard deviation of the HPR on stocks. 2. (PS-6) The stock of Business Adventures sells for $40 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. State of the Economy Dividend Stock Price Boom $2.00 $50 Normal Growth $1.00 $43 Recession $0.50 $34 a) Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. 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%.
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