Question

Quantitative Problem: You are given the following probability distribution for CHC Enterprises:

State of Economy	Probability	Rate of return
Strong	0.2	22%
Normal	0.45	9
Weak	0.35	-4

What is the stock's expected return? Round your answer to 2 decimal places. Do not round intermediate calculations.
%

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

What is the stock's coefficient of variation? Round your answer to two decimal places. Do not round intermediate calculations.

Answer 1

expected return=Respective Return*Respective probability

=(0.2*22)+(0.45*9)+(0.35*-4)=7.05%

probability	Return	probability*(Return-Expected Return)^2
0.2	22	0.2*(22-7.05)^2=44.7005
0.45	9	0.45*(9-7.05)^2=1.711125
0.35	-4	0.35*(-4-7.05)^2=42.735875
		Total=89.1475%

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

=(89.1475)^(1/2)

which is equal to

=9.44%

Coefficient of variation=Standard deviation/Expected Return

(9.44/7.05)

=1.34(Approx).