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Scenario Analysis. The common stock of Leaning Tower of Pita, Corporation, a restaurant chain, will make the following payoffs to investors next year:
Dividend Stock PriceBoom $5.00 $195Normal economy 2.00 100Recession 0 0
The company goes out of business if a recession hits. Calculate the expected rate of return and standard deviation of return to Leaning Tower of Pita shareholders. Assume for simplicity that the three possible states of the economy are equally likely. The stock is selling today for $90.
Problem #2
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