2. Based on the following information calculate the expected return and standard deviation for the two stocks: State of economy Recession Normal Boom Probability of state of economy .05 .65 .30 Rate of return if state occur Stock A Stock B -.17 .12 .29 .05 .08 .13

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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2. Based on the following information calculate the expected return and standard deviation for the two
stocks:
State of economy
Probability of state of economy
Rate of return if state occur
Stock A
Stock B
-.17
.12
.29
Recession
Normal
Boom
3. How should the price of a stock change when it goes ex-dividend?
4. Suppose stock in Gamma Air Freight has a beta of 1.25. the market risk premium is 7% and the risk free
rate is 6%. Alpha's last dividend was $2 per share and the dividend is expected to grow at 8% indefinitely.
The stock currently sells for $30. What is Gamma's cost of equity capital?
.05
.65
.30
.05
.08
.13
Transcribed Image Text:2. Based on the following information calculate the expected return and standard deviation for the two stocks: State of economy Probability of state of economy Rate of return if state occur Stock A Stock B -.17 .12 .29 Recession Normal Boom 3. How should the price of a stock change when it goes ex-dividend? 4. Suppose stock in Gamma Air Freight has a beta of 1.25. the market risk premium is 7% and the risk free rate is 6%. Alpha's last dividend was $2 per share and the dividend is expected to grow at 8% indefinitely. The stock currently sells for $30. What is Gamma's cost of equity capital? .05 .65 .30 .05 .08 .13
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