Question

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

State of Economy	Probability	Rate of return
Strong	0.25	22%
Normal	0.45	8%
Weak	0.3	-5%

What is the stock's expected return? Round your answer to 2 decimal places. Do not round intermediate calculations.
%

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.

Answer 1

Expected return=Respective return*Respective probability
=(0.25*22)+(0.45*8)+(0.3*-5)=7.6%

probability	Return	probability*(Return-Expected Return)^2
0.25	22	0.25*(22-7.6)^2=51.84
0.45	8	0.45*(8-7.6)^2=0.072
0.3	-5	0.3*(-5-7.6)^2=47.628
		Total=99.54%

Standard deviation=[Total probability*(Return-Expected Return)^2/Total probability]^(1/2)
=(99.54)^(1/2)

=9.98%(Approx).

Coefficient of variation=Standard deviation/Expected Return

=(9.98/7.6)

=1.31(Approx).