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Suppose you are given the following forecasts for the economy and for Sneezy Company at the ...

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Suppose you are given the following forecasts for the economy and for Sneezy Company at the ...

Suppose you are given the following forecasts for the economy and for Sneezy Company at the beginning of the year:

State of the Economy	Probability of Occurrence	Expected Return
Expansion	20%	20%
Normal	60%	12%
Recession	20%	-10%

During the year, you observed the following:

Quarter	Opening Price	Dividend	Closing Price
January - March	$14.72	$0.50	$15.32
April - June	$15.32	$0.50	$16.50
July - September	$16.50	$0.50	$16.18
October - December	$16.18	$0.50	$16.76

a) Calculate the ex-ante expected return
b) Calculate the ex-ante standard deviation of returns
c) Calculate the ex-post average return
d) Calculate the ex-post standard deviation of returns

Textbook

Corporate Finance

Edition: 5^th

Author: Booth

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