1. 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 | 0.1 | (36%) |
Below average | 0.2 | (9) |
Average | 0.3 | 17 |
Above average | 0.3 | 39 |
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.
Expected return=Respective return*Respective probability
=(0.1*-36)+(0.2*-9)+(0.3*17)+(0.3*39)+(0.1*70)=18.4%
probability | Return | probability*(Return-Expected Return)^2 |
0.1 | -36 | 0.1*(-36-18.4)^2=295.936 |
0.2 | -9 | 0.2*(-9-18.4)^2=150.152 |
0.3 | 17 | 0.3*(17-18.4)^2=0.588 |
0.3 | 39 | 0.3*(39-18.4)^2=127.308 |
0.1 | 70 | 0.1*(70-18.4)^2=266.256 |
Total=840.24% |
Standard deviation=[Total probability*(Return-Expected Return)^2/Total probability]^(1/2)
28.99%(Approx)
Coefficient of variation=Standard deviation/Expected Return
=(28.99/18.4)=1.58(Approx).
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