Question

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

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

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).