Question

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	(48%)
Below average	0.4	(7)
Average	0.3	14
Above average	0.1	32
Strong	0.1	46
	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.

Answer 1

Expected return=Respective return*Respective probability

=(0.1*-48)+(0.4*-7)+(0.3*14)+(0.1*32)+(0.1*46)

=4.40%

probability	Return	probability*(Return-Expected value)^2
0.1	-48	0.1*(-48-4.4)^2=274.576
0.4	-7	0.4*(-7-4.4)^2=51.984
0.3	14	0.3*(14-4.4)^2=27.648
0.1	32	0.1*(32-4.4)^2=76.176
0.1	46	0.1*(46-4.4)^2=173.056
		Total=603.44%

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

=24.57%(Approx).

Coefficient of variation=Standard deviation/Expected value

=(24.57/4.4)

=5.58(Approx).