©BRAINBARTER 2024/2025
Investment Management Chapter 5 Exam
Questions With Verified Answers.
Suppose your expectations regarding the stock market are as follows:
State of the Economy
Probability HPR
Boom 0.3 41%
Normal growth 0.6 24
Recession 0.1 -18
Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not
round intermediate calculations. Round your answers to 2 decimal places.) - answer✔Mean =
[0.3 × 0.41] + [0.6 × 0.24] + [0.1 × (-0.18)] = 0.249 or 24.90%
Standard Deviation =
Var = [0.3 × (0.41 - 0.249^2] + [0.6 × (0.24 - 0.249^2] + [0.1 × (-0.18 - 0.249)^2 = 0.0262
Standard Deviation = Sq. rt 0.0262 = .1620 = 16.20%
The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-
year price depend on the state of the economy by the end of the year as follows:
, ©BRAINBARTER 2024/2025
Dividend Stock Price
Boom $2.80 $48
Normal economy 1.80 43
Recession .90 34
a. Calculate the expected holding-period return and standard deviation of the holding-period
return. All three scenarios are equally likely. (Do not round intermediate calculations. Round
your answers to 2 decimal places.) - answer✔HPR = Ending Price - Beginning Price + Cash
Dividend / Beginning Price
a. The holding period returns for the three scenarios are:
Boom: (48 - 40 + 2.8)/40 = 0.27 = 27%
Normal: (43 - 40 + 1.8)/40 = 0.120 = 12.0%
Recession: (34 - 40 + .90)/40 = -0.1275 = -12.75%
= [(1/3) × 0.27] + [(1/3) × 0.120] + [(1/3) × (-0.1275) =0.08750 or 9%
Variance = [(1/3) × (0.27 - 0.08750)^2] + [(1/3) × (0.120 - 0.08750)^2] + [(1/3) × (-0.1275 -
0.08750)^2] = .026863
Std. Dev = Sq. Rt .026863 = .16390 = 16.39%
The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-
year price depend on the state of the economy by the end of the year as follows:
Dividend Stock Price
Boom $2.80 $48
Investment Management Chapter 5 Exam
Questions With Verified Answers.
Suppose your expectations regarding the stock market are as follows:
State of the Economy
Probability HPR
Boom 0.3 41%
Normal growth 0.6 24
Recession 0.1 -18
Use above equations to compute the mean and standard deviation of the HPR on stocks. (Do not
round intermediate calculations. Round your answers to 2 decimal places.) - answer✔Mean =
[0.3 × 0.41] + [0.6 × 0.24] + [0.1 × (-0.18)] = 0.249 or 24.90%
Standard Deviation =
Var = [0.3 × (0.41 - 0.249^2] + [0.6 × (0.24 - 0.249^2] + [0.1 × (-0.18 - 0.249)^2 = 0.0262
Standard Deviation = Sq. rt 0.0262 = .1620 = 16.20%
The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-
year price depend on the state of the economy by the end of the year as follows:
, ©BRAINBARTER 2024/2025
Dividend Stock Price
Boom $2.80 $48
Normal economy 1.80 43
Recession .90 34
a. Calculate the expected holding-period return and standard deviation of the holding-period
return. All three scenarios are equally likely. (Do not round intermediate calculations. Round
your answers to 2 decimal places.) - answer✔HPR = Ending Price - Beginning Price + Cash
Dividend / Beginning Price
a. The holding period returns for the three scenarios are:
Boom: (48 - 40 + 2.8)/40 = 0.27 = 27%
Normal: (43 - 40 + 1.8)/40 = 0.120 = 12.0%
Recession: (34 - 40 + .90)/40 = -0.1275 = -12.75%
= [(1/3) × 0.27] + [(1/3) × 0.120] + [(1/3) × (-0.1275) =0.08750 or 9%
Variance = [(1/3) × (0.27 - 0.08750)^2] + [(1/3) × (0.120 - 0.08750)^2] + [(1/3) × (-0.1275 -
0.08750)^2] = .026863
Std. Dev = Sq. Rt .026863 = .16390 = 16.39%
The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-
year price depend on the state of the economy by the end of the year as follows:
Dividend Stock Price
Boom $2.80 $48
