Question

EXPECTED RETURN A stock's returns have the following distribution: Demand for the Company's Products Probability of...

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 (40%)
Below average 0.2 (9)   
Average 0.4 15  
Above average 0.1 28  
Strong 0.2 71  
1.0

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

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

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

Homework Answers

Answer #1

Expected return=Respective return*Respective probability

=(0.1*-40)+(0.2*-9)+(0.4*15)+(0.1*28)+(0.2*71)=17.2%

probability Return probability*(Return-Mean)^2
0.1 -40 0.1*(-40-17.2)^2=327.184
0.2 -9 0.2*(-9-17.2)^2=137.288
0.4 15 0.4*(15-17.2)^2=1.936
0.1 28 0.1*(28-17.2)^2=11.664
0.2 71 0.2*(71-17.2)^2=578.888
Total=1056.96%

Standard deviation=[Total probability*(Return-Mean)^2/Total probability]^(1/2)
=32.51%(Approx)

Coefficient of variation=Standard deviation/MEan

(32.51/17.2)

=1.89(Approx).

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