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	-46%
Below average	0.3	-13
Average	0.3	11
Above average	0.2	31
Strong	0.1	64
	1.0

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

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

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

Answer 1

Expected return=Respective Return*Respective probability

=(0.1*-46)+(0.3*-13)+(0.3*11)+(0.2*31)+(0.1*64)=7.4%

probability	Return	probability*(Return-Expected Return)^2
0.1	-46	0.1*(-46-7.4)^2=285.156
0.3	-13	0.3*(-13-7.4)^2=124.848
0.3	11	0.3*(11-7.4)^2=3.888
0.2	31	0.2*(31-7.4)^2=111.392
0.1	64	0.1*(64-7.4)^2=320.356
		Total=845.64%

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

=29.08%(Approx).

Coefficient of variation=Standard deviation/Expected Return

=(29.08/7.4)=3.93(Approx).