Question

You are given the following probability distribution for CHC Enterprises:

State of Economy	Probability	Rate of return
Strong	0.25	22%
Normal	0.45	9%
Weak	0.30	-6%

What is the stock's expected return? Do not round intermediate calculations. Round your answer to two decimal places.

%

What is the stock's standard deviation? Do not round intermediate calculations. Round your answer to two decimal places.

%

What is the stock's coefficient of variation? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Expected return=Respective return*Respective probability

=(0.25*22)+(0.45*9)+(0.3*-6)

=7.75%

probability	Return	probability*(Return-Expected Return)^2
0.25	22	0.25*(22-7.75)^2=50.765625
0.45	9	0.45*(9-7.75)^2=0.703125
0.3	-6	0.3*(-6-7.75)^2=56.71875
		Total=108.1875%

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

=(108.1875)^(1/2)

=10.40%(Approx)

Coefficient of variation=Standard deviation/Expected return

=10.40/7.75

=1.34(Approx)