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    Holding-period return and standard deviation

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    5. 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:

    Dividend Stock Price
    Boom $2.00 $50
    Normal economy 1.00 43
    Recession .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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    Solution Summary

    Calculates the expected holding-period return and standard deviation of the holding-period return of investment in Business Adventures stock . Also calculates the expected return and standard deviation of a portfolio invested half in Business Adventures stock and half in Treasury bills.

    $2.49

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