Question

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

1. Calculate the stock's expected return. Round your answer to two decimal places.
   %

2. Calculate the stock's standard deviation. Round your answer to two decimal places.
   %

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

Answer 1

Stock	Probability (P)	RETURN (Y)	(P * Y )	P * (Y -Average Return of Y)^2
Weak	10%	-50	-5.00	368.45
Below Average	20%	-9	-1.80	77.62
Average	50%	13	6.50	2.65
Above Average	10%	37	3.70	69.17
Strong	10%	73	7.30	388.13
		TOTAL	10.70	906.01
Expected Return =		(P * Y)
		10.70%
VARIANCE =		P * (Y -Average Return of Y)^2
		906.0100
Standard Deviation =		Square root of (P * (Y -Average Return of Y)^2)
		Square root of 906.01
		30.10
COEFFICIENT OF VARIATION=		STANDARD DEVIATION/ MEAN
		30.10 / 10.70
		2.81