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# The common stock of ESP sells for \$25 a share and the payoff next year under 3 possible scenarios is the following:

The common stock of ESP sells for \$25 a share and the payoff next year under 3 possible scenarios is the following:
Dividend Stock Price
Boom 0 \$18
Normal Economy \$1 26
Recession 3 34
Calculate the expected return and standard deviation of ESP. All three scenarios are equally likely.

Dear Student, Please check the attached solutions file of... View the full answer

Let the probability for each economic state is 1/3
Then
Price of common share = \$25
Expected EPS
18
126
334 Expected EPS in %
72%
504%
1336% Expected Return (ER) = 1/3(0.72) +1/3*(5.04)...

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