Respuesta :
Solution :
Holding Period return is given by :
Holding period return [tex]$=\frac{\text{ending value - beginning value + dividend income}}{\text{beginning value}}$[/tex]
Now the holding the period return for the various cases :
Boom
Ending stock price = $ 60
Beginning stock price = $ 50
Dividend income = $ 3
Hence, holding period return is [tex]$=\frac{60-50+30}{50}$[/tex]
= 0.26
So, the holding period return = 26%
Normal economy
Ending stock price = $ 58
Beginning stock price = $ 50
Dividend income = $ 1.2
Hence the holding period return [tex]$=\frac{58-50+1.2}{50}$[/tex]
= 0.184
So, the holding period return = 18.4%
Recession
Ending stock price = $ 49
Beginning stock price = $ 50
Dividend income = $ 0.75
Hence the holding period return [tex]$=\frac{49-50+0.75}{50}$[/tex]
= -0.005
So, the holding period return = -0.5%
As all the cases, the probability is same = 0.333
Therefore, the expected holding period return is :
The expected holding period return = (0.333 x 0.26) + (0.333 x 0.184) + (0.333 x -0.005)
= 0.8658 + 0.06127 - 0.00166
= 0.149515
Therefore, the expected holding period return = 14.95%
