Question

Shack Homebuilders Limited is evaluating a new promotional campaign that could increase home sales. Possible outcomes and probabilities of the outcomes are shown next.      
  

Possible Outcomes	Additional Sales in Units			Probabilities
Ineffective campaign		70			.20
Normal response		80			.20
Extremely effective		150			.60

     
Compute the coefficient of variation. (Do not round intermediate calculations. Round your answer to 3 decimal places.)
  

Answer 1

Expected sales=Respective sales*Respective probability

=(0.2*70)+(0.2*80)+(0.6*150)=120 units

probability	Sales	probability*(Sales-Expected sales)^2
0.2	70	0.2*(70-120)^2=500
0.2	80	0.2*(80-120)^2=320
0.6	150	0.6*(150-120)^2=540
		Total=1360 units.

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

=(1360)^(1/2)

=36.878 units(Approx).

Coefficient of variation=Standard deviation/Expected Sales

=(36.878/120)

=0.307(Approx).