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%.