Business adventures

State of the economy Dividend Stock Price

Boom $ 2.00 $ 50.00
Normal growth $ 1.00 $ 43.00
Recession $ 0.50 $ 34.00
Current stock price = $ 40.00

Treasury Bill return = 4.00%

Solution

a. a b
State of the economy Probability HPR
Boom 0.33 30.00%
Normal growth 0.33 10.00%
Recession 0.33 -13.75%
Expected return =

Variance = 3.20%

Standard deviation = 17.88%

b.
Expected return = 2.00%

Standard deviation = 8.94%

 HPR
30.00%
10.00%
-13.75%

axb c d axd
HPR x Probability Deviation Square of Deviation Variance
0.1000 21.250% 0.04515625 0.0151
0.0333 1.250% 0.00015625 0.0001
(0.0458) -22.500% 0.050625 0.0169
0.0875 0.0320