Question

Suppose your expectations regarding the stock market are as follows: Probability HP State of the Economy Boom 42% 23 0.2 Normal growth Recession Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculationsR answers to 2 decimal places Mean Standard deviation

Answer 1

ANGWER 1 R. Recess ia 42 x 0.23x 0.6-17 0.2 [13.8 y] [-3.4%] 12.20 .| RetuanS 2 2 42 23.538.24 0.2 107. 648 23 4.2 10. 584 35.8 1281.6 0.2 256. 328 RIANCE 374.56 Std. Ņeuiahỉon: 19.35 % VAR 314.56

ANSWER 2 (a) Caltulatim fspuctd Ralun Step1: Calculate Expactid Dividknd to bi hecuivid xpected biridand í Dividtnd x obobility 串1.50 x 0.331 + NOTE : it is ai vert in Φυts that all 3 ScenahioS have equal ρ.hoba bilities О. 495 0.33+ 0.187 . 045 Stp 2 : Calculate Exputd Stock Pice Expecta .ock AicL·StockAice x pobability |& 35 0.33| + [$ 30 x 0.33] + 1$. 21 x 0.34 1.55 9.97.1 28.59

ER= Expected bividend + (expected Stock phice- CuDant Dice. X 100 1.045 28.59 25 X 100 25 1.045t 25 18.81% Caltulation of StandlasdDwiatin Step 1:Caltulatz Molding ood Retun und3 scunaios → H PR Boom- Dividend t (Exp. pice-count、NU .5 35-25 25 46

HPR = Dividend t (Exp. Ace-CwentPnrce Nomal to non 25 24,4 % HPR Recession 0.55 +(21-25) x 10 25 3.8 18 21 MPR 2 X- X hobabii 16 21 3.8 736.03&9 30. 5809 1067.3289 0.333 333 0.333 333 0.333333 245.34563333 27.13 53 31.67 10. 19 3633333 355. 7763 VARIANCE = 611.3155""

ANSwER2 (b) Since Qmt. invested is Equal [18.87% x 0.5) t [3% x o.5] -10.94% → Std.DLui ation.of Pat olio = Std.BeviaKon of 'Business Ahenhau, x Uni hr in Aatfolio 24.72 ./-х 0.5