Expected rate of return and standard deviation of return

Assignment Help Financial Management

Reference no: EM131937300

1. 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 $ 220 Normal economy 4 110 Recession 0 0 The company goes out of business if a recession hits. Assume for simplicity that the three possible states of the economy are equally likely. The stock is selling today for $100. a-1. Calculate the rate of return to Leaning Tower of Pita shareholders for each economic state. (Negative amounts should be indicated by a minus sign. Enter your answers as a percent rounded to 2 decimal places.)

Rate of return Boom %

Normal economy %

Recession %

a-2. Calculate the expected rate of return and standard deviation of return to Leaning Tower of Pita shareholders. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Expected return %

Standard deviation %

Reference no: EM131937300

Questions Cloud

Reflected in the analysis of capital budgeting project : Which of the following is NOT a relevant cash flow and thus should NOT be reflected in the analysis of a capital budgeting project?

At what price will stock reach equilibrium : At what price will the stock reach an “equilibrium” at which it is perceived as fairly priced today?

Estimate the beta of equally weighted portfolio : Estimate the beta of an equally weighted portfolio.

Use capm to calculate the market risk premium : Use the CAPM to calculate the market risk premium and the expected rate of return on the market.

Expected rate of return and standard deviation of return : Calculate the expected rate of return and standard deviation of return to Leaning Tower of Pita shareholders.

Credit risk adjusted assets total capital : Calculate the total capital. Calculate CET1/ Credit risk adjusted assets Tier I/Credit risk adjusted assets Total capital/Credit risk adjust assets

Which are payout policies to pay cash out to shareholders : Out of the choices of cash dividend, stock dividend, stock repurchase, and interest payment, which are the payout policies to pay cash out to shareholders?

The account earns annual interest rate : If the account earns an annual interest rate of 1.5% and the expected annual rate of inflation is 1.8%, how much should YOU contribute each month to the 401(k)?

Expects to maintain this debt level into the far future : It expects to maintain this debt level into the far future? It expects to repay the debt at the end of 5 years?

User Account

All Pages