Question

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	0.2	(34%)
Below average	0.1	(15)
Average	0.4	13
Above average	0.1	33
Strong	0.2	49
	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

=(0.2*-34)+(0.1*-15)+(0.4*13)+(0.1*33)+(0.2*49)=10%

probability	Return	probability*(Return-Mean)^2
0.2	-34	0.2*(-34-10)^2=387.2
0.1	-15	0.1*(-15-10)^2=62.5
0.4	13	0.4*(13-10)^2=3.6
0.1	33	0.1*(33-10)^2=52.9
0.2	49	0.2*(49-10)^2=304.2
		Total=810.4%

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

=28.47%(Approx)

Coefficient of variation=Standard deviation/Mean

=(28.47/10)=2.85(Approx).