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 |
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.
%
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).
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