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 | (40%) |
Below average | 0.1 | (11) |
Average | 0.4 | 11 |
Above average | 0.2 | 38 |
Strong | 0.1 | 70 |
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 is 9.90% calculated as below
Demand | Probability | Return | Probability * return |
Weak | 0.20 | -40.00 | -8.00 |
Below average | 0.10 | -11.00 | -1.10 |
Average | 0.40 | 11.00 | 4.40 |
Above average | 0.20 | 38.00 | 7.60 |
Strong | 0.10 | 70.00 | 7.00 |
Expected Return | 9.90 |
2)
Probability | Return | Return-mean | (Return-mean )^{2} | Return-mean*Probability |
0.20 | -40.00 | -49.90 | 2490.01 | 498.002 |
0.10 | -11.00 | -20.90 | 436.81 | 43.681 |
0.40 | 11.00 | 1.10 | 1.21 | 0.484 |
0.20 | 38.00 | 28.10 | 789.61 | 157.922 |
0.10 | 70.00 | 60.10 | 3612.01 | 361.201 |
Variance | 1061.29 |
Standard deviation =
=
= 32.58
3) Stock's coefficient of variation= (standard deviation) / (expected value)
= 32.58/9.90
= 3.29
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