The end-of-year stock prices for KFD Corporation for the past six years, and annual dividends per share, are as follows:

Year               Stock Price               Dividends    

2009               $ 85.23                                   $ 0.22

2008               $ 79.14                                   $ 0.18

2007               $ 37.86                                   $ 0.14

2006               $ 45.99                                   $ 0.10

2005               $ 23.33                                   $ 0.10

2004               $ 14.67                                   —                  

You have the following expectations for KFD’s stock price during 2010:

Outlook         Probability    Stock Price  

Good               45%                $ 93.42

Average           35%                $ 89.15

Bad                  20%                $ 81.87                     

You think KFD will pay a dividend of $ 0.22 during 2010, regardless of the economic outlook.

1. Calculate the annual returns on KFD Corporation’s stock for the years 2005– 2009. Determine the geometric and arithmetic means for the returns as well as the variance and standard deviation of the arithmetic mean.

2. Forecast the overall expected return and standard deviation for KFD’s stock during 2010.