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	(28%)
Below average	0.1	(13)
Average	0.5	12
Above average	0.1	35
Strong	0.2	52
	1.0

1. Calculate the stock's expected return. Round your answer to two decimal places.
   15.8%

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

3. %

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

Answer 1

Expected return=Respective return*Respective probability

=(0.1*-28)+(0.1*-13)+(0.5*12)+(0.1*35)+(0.2*52)=15.8%

probability	Return	probability*(Return-Expected Return)^2
0.1	-28	0.1*(-28-15.8)^2=191.844
0.1	-13	0.1*(-13-15.8)^2=82.944
0.5	12	0.5*(12-15.8)^2=7.22
0.1	35	0.1*(35-15.8)^2=36.864
0.2	52	0.2*(52-15.8)^2=262.088
		Total=580.96%

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

=24.10%(Approx).

Coefficient of variation=Standard deviation/Expected Return

=(24.10/15.8)=1.53(Approx).