Question

Justin Corp believes the following probability distribution exists for its stock. What is the coefficient of...

Justin Corp believes the following probability distribution exists for its stock. What is the coefficient of variation on the company's stock?

State prob stock return
boom 0.45 0.25
normal 0.5 0.15
recession 0.05 0.05

0.0583

0.0531

0.0587

0.0596

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Homework Answers

Answer #1

Avg ret = Sum [ Prob * Ret ]

SD = SQRT [ SUM ( Prob * (( Ret - Avg Ret) ^2) ) ]

CV = SD / Avg Ret

= 5.83% / 19%

= 0.3069

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