What is the expected return of cn stock

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You are employed as an analyst at a major North American financial institution. An investment opportunity presents itself for you to analyze. CN rail is in the Canadian Transportation industry. Bill Gates has taken a position in CN rail and now owns 14% of the outstanding shares. The current stock price is $140 per share. Market analysts have forecasted that if there is a recession next year the CN stock price will drop to $125, if the economy operates normally the stock price will be $150 and if the economy is expanding the stock price will reach $170. The likelihood of a recession is 30% the likelihood of an expanding economy is 30% and the likelihood of a normal economy is 40%. CN's beta is 0.85.

Problem 1: What is the Expected Return and Standard deviation of CN stock if we assume that the CAPM holds?

Reference no: EM132971608

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