2 The investment performance of Analytical Intelligence Corp

The investment performance of Analytical Intelligence Corp. common stock varies somewhat with the economy. Below are predictions of how the stock could perform in 2018 under a variety of economic scenarios projected 2018 scenario probability of occurrence stock return economic boom avg. economy slow economy 40% 40% 20% 34 % 15% (10%) Calculate the stock\'s expected return for the year Enter your answer to I decimal place without the % sign Example: If your answer is 8.83%, enter 8.8

Solution

1.

Stock\'s Expected return = (40% × 34%) + (40% × 15%) + (20% × -10%)

= 13.60% + 6.00% - 2%

= 17.60%

Stock\'s Expected return is 17.60%.

2.

Net Income for year = $600,000

Payout Ratio = 25%

Retentin ratio = 1 - 25%

= 75%.

Profit Reinvested in Business = Profit for year × Retention ratio

= $600,000 × 75%

= $450,000

Profit Reinvested in Business is $450,000.