The common stock of Escapist Films sells for $30 a share and offers the following payoffs next year:

The common stock of Escapist Films sells for $30 a share and offers the following payoffs next year:

	Dividend	Stock Price
Boom	0	$24
Normal economy	$1	32
Recession	4	38

All three scenarios are equally likely.

a.	Calculate the expected return of Escapist. (Negative values should be indicated by a minus sign.)

	Expected Return
Boom	%
Normal economy	%
Recession	%

b.	Calculate the standard deviation of Escapist. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Standard deviation

%

Explanation:

Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations.

Escapist Films:

Boom:	$0 + ($24 − $30)	=	−20%
	$30

Normal:	$1 + ($32 − $30)	=	10%
	$30

Recession:	$4 + ($38 − $30)	=	40%
	$30

r  =	(−20) + 10 + 40	=	10.00%
	3

Variance =	1	× (−20 − 10.00)2 +	1	× (10 − 10.00)2 +	1	× (40 − 10.00)2  =	600.00
	3		3		3

Standard deviation

=

=

24.49%