Question

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

1. Calculate the stock's expected return. Round your answer to two decimal places.
   %

2. Calculate the stock's standard deviation. Do not round intermediate calculations. Round your answer to two decimal places.
   %

3. Calculate the stock's coefficient of variation. Round your answer to two decimal places.
   

Answer 1

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