Question

# 2. Quantitative Problem: You are given the following probability distribution for CHC Enterprises: State of Economy...

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

 State of Economy Probability Rate of return Strong 0.25 22% Normal 0.5 9% Weak 0.25 -6%

- 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.
______

5.

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 (20%) Below average 0.2 (14) Average 0.3 15 Above average 0.1 22 Strong 0.3 70 1.0

- Calculate the stock's coefficient of variation. Round your answer to two decimal places.

6. A stock has a required return of 9%; the risk-free rate is 4.5%; and the market risk premium is 4%.

- New stock's required rate of return will be ____%. Round your answer to two decimal places.

Expected return = sum of (probability of state * return of state)

E(X^2) =  sum of (probability of state * return of state^2)

variance = E(X^2) - (E(X))^2

Standard deviation = sqrt(variance)

2)

 State of Economy Probability of Economy(X) Rate of return strong 0.25 22.00% normal 0.50 9.00% weak 0.25 -6.00% Expected return E(X)=sum of(x*P(X)) 8.50% E(X^2) 0.01705 Variance=E(X^2)-E(X)^2 0.009825 Standard deviation=sqrt(Variance) 9.91% coefficient of variation = std/expected return 1.17

standard deviation = 9.91

coefficient of variance = 1.17

5)

 State Probability of State (P) Stock X (R) P*R P*R^2 weak 10% -20% -2.00% 0.40% Below average 20% -14% -2.80% 0.39% average 30% 15% 4.50% 0.68% above average 10% 22% 2.20% 0.48% strong 30% 70% 21.00% 14.70% Sum 22.9% 16.651%

variance = 0.16651 - (0.229)^2

=  0.114069

standard deviation = sqrt(0.114069)

= 33.77%

coefficient variation = standard deviation/expected return

= 33.77/22.9

= 1.48

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