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Scenario analysis and portfolio risk

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Scenario Analysis and Portfolio Risk.  

The common stock of Bell Tower, 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                         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 the shareholders. Assume for simplicity that the three possible states of the economy are equally likely. The stock is selling today for $80.

Reference no: EM133055951

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