Question

Exercise

Calculate the expected return, variance, standard deviation and coefficient of variation for the following stock:

Demand for Company’s Products |
Probability of this outcome |
Return if this occurs |

Weak |
.1 |
-50% |

Below Average |
.2 |
-5% |

Average |
.4 |
16% |

Above Average |
.2 |
25% |

Strong |
.1 |
60% |

1.0 |

Answer #1

Calculate the stock’s expected return, variance and standard
deviation.
Demand for the Company’s Products
Probability of This Demand Occurring
Rate of Return if This Demand Occurs
Weak
0.15
(30%)
Below average
0.20
(3%)
Average
0.35
18%
Above average
0.20
25%
Strong
0.10
31%

Company share’s return has the following distribution:
Demand for the Company’s Products
Probability of this demand occurring
Rate of return if this demand occurs (%)
Weak
0.1
-50
Below Average
0.2
-15
Average
0.4
16
Above Average
0.2
25
Strong
0.1
60
Required:
Calculate the share’s expected return and standard deviation.

A stock's return has the following distribution:
Calculate the standard deviation. Round your answer to two
decimal places
Demand for the
Company's Products
Probability of This
Demand Occurring
Rate of Return if This
Demand Occurs (%)
Weak
0.1
-25%
Below average
0.2
-5
Average
0.4
8
Above average
0.2
25
Strong
0.1
55
1.0

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
-50%
Below average
0.2
-9
Average
0.5
13
Above average
0.1
37
Strong
0.1
73
1.0
Calculate the stock's expected return. Round your answer to two
decimal places.
%
Calculate the stock's standard deviation. Round your answer to
two decimal places.
%
Calculate the stock's coefficient of variation. Round your
answer to...

EXPECTED RETURN A stock’s returns have the following
distribution: Demand for the Company’s Products Weak Below average
Average Above average Strong Probability of this Demand Occurring
0.1 0.1 0.3 0.3 0.2 1.0 Rate of Return if this Demand Occurs (30%)
(14) 11 20 45 Assume the risk-free rate is 2%. Calculate the
stock’s expected return, standard deviation, coefficient of
variation, and Sharpe ratio.
1Expected return = 0.1*(-30%) + 0.1*(-14%) + 0.3*(11%) +
0.3*(20%) + 0.2*(45%) = 13.90%
Standard deviation =...

Problem 8-1
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
-44%
Below average
0.1
-13
Average
0.4
16
Above average
0.1
33
Strong
0.3
63
1.0
Calculate the stock's expected return. Round your answer to two
decimal places.
%
Calculate the stock's standard deviation. Round your answer to
two decimal places.
%
Calculate the stock's coefficient of variation. Round your...

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 0.2 (34%)
Below average 0.1 (12)
Average 0.4 16
Above average 0.2 40
Strong 0.1 47
1.0
A.Calculate the stock's expected return. Round your answer to
two decimal places.
%
B.Calculate the stock's standard deviation. Do not round
intermediate calculations. Round your answer to two decimal
places.
%
C. Calculate the stock's...

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
0.2
(24%)
Below average
0.2
(12)
Average
0.4
16
Above average
0.1
22
Strong
0.1
70
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...

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
(30%)
Below average
0.2
(13)
Average
0.3
16
Above average
0.3
37
Strong
0.1
61
1.0
Assume the risk-free rate is 2%. Calculate the stock's expected
return, standard deviation, coefficient of variation, and Sharpe
ratio. Do not round intermediate calculations. Round your answers
to two decimal places.
Stock's expected return: %
Standard deviation: %
Coefficient of...

Calculate the coefficients of variation for the following
stocks:
Stock
Expected return
Standard deviation of return
1
0.065
0.29
2
0.04
0.17
3
0.15
0.24
1. What is the coefficient of variation for stock 1?
2.What is the coefficient of variation for stock 2?
3. What is the coefficient of variation for stock 3?
4. If you want to get the best risk-to-reward trade-off, which
stock should you buy?

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