Forecast the overall expected return and standard deviation

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Reference no: EM131051033

The end-of-year stock prices for KFD Corporation for the past six years, and annual dividends per share, are as follows:

Year Stock Price Dividends

2009 $ 85.23 $ 0.22

2008 $ 79.14 $ 0.18

2007 $ 37.86 $ 0.14

2006 $ 45.99 $ 0.10

2005 $ 23.33 $ 0.10

2004 $ 14.67 —

You have the following expectations for KFD’s stock price during 2010:

Outlook Probability Stock Price

Good 45% $ 93.42

Average 35% $ 89.15

Bad 20% $ 81.87

You think KFD will pay a dividend of $ 0.22 during 2010, regardless of the economic outlook.

1. Calculate the annual returns on KFD Corporation’s stock for the years 2005– 2009. Determine the geometric and arithmetic means for the returns as well as the variance and standard deviation of the arithmetic mean.

2. Forecast the overall expected return and standard deviation for KFD’s stock during 2010.

Reference no: EM131051033

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