Required: 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 3%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return Standard deviation % %

Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter7: Corporate Valuation And Stock Valuation
Section: Chapter Questions
Problem 18MC
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The stock of Business Adventures sells for $65 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:
Boom
Normal economy
Recession
Expected return
Standard deviation
Dividend
$2.40
1.60
0.85
Required:
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
Stock Price
$73
66
57
%
%
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 3%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
%
Transcribed Image Text:The stock of Business Adventures sells for $65 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: Boom Normal economy Recession Expected return Standard deviation Dividend $2.40 1.60 0.85 Required: 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 Stock Price $73 66 57 % % 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 3%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) %
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