2. Based on the following information calculate the expected return and standard deviation for the twostocks:State of economyProbability of state of economyRate of return if state occurStock AStock B-.17.12.29RecessionNormalBoom3. How should the price of a stock change when it goes ex-dividend?4. Suppose stock in Gamma Air Freight has a beta of 1.25. the market risk premium is 7% and the risk freerate is 6%. Alpha's last dividend was $2 per share and the dividend is expected to grow at 8% indefinitely.The stock currently sells for $30. What is Gamma's cost of equity capital?.05.65.30.05.08.13

Standard Deviation measures the risk involved in earning the return from the stock. lower the…

2. Based on the following information calculate the expected return and standard deviation for the two stocks: State of economy Recession Normal Boom Probability of state of economy .05 .65 .30 Rate of return if state occur Stock A Stock B -.17 .12 .29 .05 .08 .13

2. Based on the following information calculate the expected return and standard deviation for the two stocks: State of economy Recession Normal Boom Probability of state of economy .05 .65 .30 Rate of return if state occur Stock A Stock B -.17 .12 .29 .05 .08 .13

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...

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Question

2. Based on the following information calculate the expected return and standard deviation for the two
stocks:
State of economy
Probability of state of economy
Rate of return if state occur
Stock A
Stock B
-.17
.12
.29
Recession
Normal
Boom
3. How should the price of a stock change when it goes ex-dividend?
4. Suppose stock in Gamma Air Freight has a beta of 1.25. the market risk premium is 7% and the risk free
rate is 6%. Alpha's last dividend was $2 per share and the dividend is expected to grow at 8% indefinitely.
The stock currently sells for $30. What is Gamma's cost of equity capital?
.05
.65
.30
.05
.08
.13

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