The common stock of Candy's Chocolates sells or $25 a share and offers these payoffs next year

Finance May 05, 2021

The common stock of Candy's Chocolates sells or $25 a share and offers these payoffs next year.

Dividend Stock Price

Boom (20%) $0 $18

Normal (60%) $1 $26

Recession (20%) $3 $34

Calculate the expected return and standard deviation of Candy's stock if a boom and a recession are both 20% likely to happen and a normal economy is 60% likely.

Expert Solution

Expected return = 8.80%

Standard deviation = 24.05%

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