Question

Quantitative Problem: You are given the following probability distribution for CHC Enterprises:

State of Economy Probability Rate of Return

Strong 0.2 19%

Normal 0.5 9%

Weak 0.3 -4%

What is the stock's expected return? Round your answer to 2 decimal places. Do not round intermediate calculations.

What is the stock's standard deviation? Round your answer to two decimal places. Do not round intermediate calculations.

What is the stock's coefficient of variation? Round your answer to two decimal places. Do not round intermediate calculations.

Answer 1

Expected Return of Stock is the weighted average of the likely returns of the stock, weighted by the probabilities of each scenario.

Expected Return = 7.10%

Standard deviation of stock is as given below:

Std deviation = 0.08198 = 8.20%

Coefficient of Variance is the amount of standard deviation per unit of expected return

It is given by the formula:

Hence, coefficient of variation in our question = (8.20%/7.10%) * 100 = 115.49%