Calculate expected rate and standard deviation of return

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Reference no: EM131070815

The common stock of Leaning Tower of Pita Inc., a restaurant chain, will generate payoffs to investors next year, which depend on the state of the economy, as follows:

Dividend Stock Price

Boom $8 $240

Normal Economy $4 $90

Recession $0 $0

The company goes out of business if a recession hits. Calculate the expected rate of return and standard deviation of return to Leaning Tower of Pita shareholders. Assume for simplicity that the three possible states of the economy are equally likely. The stock is selling today for $80.

Reference no: EM131070815

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