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	(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.

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).