Question

# A stock's returns have the following distribution: Demand for the Company's Products Probability of This Demand...

A stock's returns have the following distribution: Demand for the Company's Products Probability of This Demand Occurring Rate of Return If This Demand Occurs Weak 0.2 (32%) Below average 0.1 (9) Average 0.3 10 Above average 0.1 27 Strong 0.3 45 1.0 Calculate the stock's expected return. Round your answer to two decimal places. % Calculate the stock's standard deviation. Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the stock's coefficient of variation. Round your answer to two decimal places.

1. expected return=Respective return*Respective probability

=(0.2*-32)+(0.1*-9)+(0.3*10)+(0.1*27)+(0.3*45)=11.9%

2.

 probability Return probability*(Return-Expected Return)^2 0.2 -32 0.2*(-32-11.9)^2=385.442 0.1 -9 0.1*(-9-11.9)^2=43.681 0.3 10 0.3*(10-11.9)^2=1.083 0.1 27 0.1*(27-11.9)^2=22.801 0.3 45 0.3*(45-11.9)^2=328.683 Total=781.69%

Standard deviation=[Total of probability*(Return-Expected Return)^2/Total probability]^(1/2)

=27.96%(Approx)

Coefficient of variation=Standard deviation/Expected Return

=(27.96/11.9)=2.35(Approx).

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