Question

Integrative—Expected return, standard​ deviation, and coefficient of variation   An asset is currently being considered by Perth Industries. The probability distribution of expected returns for this asset is shown in the following​ table,

j	Pr	​Return, r
1	0.05	15.00​%
2	0.15	5.00​%
3	0.70	0.00​%
4	0.05	−5.00​%
5	0.05	−10.00​%

.

a.Calculate the expected value of​ return, r​,

for the asset.

b. Calculate the standard​ deviation, for the​ asset's returns.

c. Calculate the coefficient of​ variation,

CV​, for the​ asset's returns.

Answer 1

S. no.	Probability (P)	Return = R	P * R	P * (R - R')2
1	0.05	15.00%	0.01	0.00102
2	0.15	5.00%	0.01	0.00027
3	0.70	0.00%	0.00	0.00004
4	0.05	-5.00%	0.00	0.00017
5	0.05	-10.00%	-0.01	0.00058
		Expected return (R') =	0.0075	0.00207
	Expected return	0.75%
	Standard Deviation	=SQRT(0.02624)
	Standard Deviation	0.045	4.5%
	CV	=Standard Deviation / R'
	CV	=0.045 / 0.00207	6.064468466