Exe.Risk&Return.7.2

14.       Scenario Analysi. The common stock of Learning Tower of Pita, Inc., a restaurant chain, willgenerate the following payoffs to investors next year.

	Dividend	Stock Price
Boom	$5	$195
Normal economy	2	100
Recession	0	0

The company goes out of business if a recession hits. Calculate the expected rate of return and standard deviation of return to Leaning Tower of Pita shareholders. Assume for simplicity that the three possible states of the economy are equally likely. The stock is selling today for $80.