Question

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

State of Economy	Probability	Rate of return
Strong	0.15	19	%
Normal	0.45	8	%
Weak	0.40	-6	%

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

%

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

%

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

Answer 1

Expected return=Respective return*Respective probability

=(0.15*19)+(0.45*8)+(0.4*-6)

=4.05%

probability	Return	probability*(Return-Expected Return)^2
0.15	19	0.15*(19-4.05)^2=33.525375
0.45	8	0.45*(8-4.05)^2=7.021125
0.4	-6	0.4*(-6-4.05)^2=40.401
		Total=80.9475%

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

=(80.9475)^(1/2)

=9%(Approx)

Coefficient of variation=Standard deviation/Expected return

=9/4.05

=2.22(Approx)