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	-46%
Below average	0.3	-10
Average	0.4	17
Above average	0.1	39
Strong	0.1	59
	1.0

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

2. Calculate the stock's standard deviation. Do not round intermediate calculations. Round your answer to two decimal places.
   %

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

Answer 1

Expected return=Respective return*Respective probability

=(0.1*-46)+(0.3*-10)+(0.4*17)+(0.1*39)+(0.1*59)

=9%

probability	Return	probability*(Return-Expected Return)^2
0.1	-46	0.1*(-46-9)^2=302.5
0.3	-10	0.3*(-10-9)^2=108.3
0.4	17	0.4*(17-9)^2=25.6
0.1	39	0.1*(39-9)^2=90
0.1	59	0.1*(59-9)^2=250
		Total=776.4%

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

=(776.4)^(1/2)

=27.86%(Approx).

Coefficient of variation=Standard deviation/Expected Return

=(27.86/9)

=3.10(Approx).