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 -26% Below average 0.1 -13 Average 0.4 12 Above average 0.1 35 Strong 0.3 45 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.

%

Expected Return=Respective Return*Respective probability

=(0.1*-26)+(0.1*-13)+(0.4*12)+(0.1*35)+(0.3*45)=17.9%

 probability Return probability*(Return-Expected Return)^2 0.1 -26 0.1*(-26-17.9)^2=192.721 0.1 -13 0.1*(-13-17.9)^2=95.481 0.4 12 0.4*(12-17.9)^2=13.924 0.1 35 0.1*(35-17.9)^2=29.241 0.3 45 0.3*(45-17.9)^2=220.323 Total=551.69%

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

=23.49%(Approx).

Coefficient of variation=Standard Deviation/Expected Return

=(23.49/17.9)=1.31(Approx).