Question

EXPECTED RETURN A stock's returns have the following distribution: Demand for the Company's Products Probability of...

EXPECTED RETURN

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 (24%)
Below average 0.3 (10)   
Average 0.3 14  
Above average 0.1 32  
Strong 0.2 66  
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.

Homework Answers

Answer #1
Stock
Scenario Probability Return '=rate of return * probability Actual return -expected return(A) (A)^2* probability
Weak 0.1 -24.00% -2.40% -39.20% 0.015366
Below average 0.3 -10.00% -3.00% -25.20% 0.019051
Average 0.3 14.00% 4.20% -1.20% 0.000043
Above average 0.1 32% 3.20% 16.80% 0.002822
Strong 0.2 66% 13.20% 50.80% 0.051613
Expected return = sum of weighted return = 15.20% Sum= 0.088896
Standard deviation of Stock '=(sum)^(1/2) 29.82%
Coefficient of variation= STD DEV/RETURN= 1.961542
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