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	(38%)
Below average	0.1	(14)
Average	0.3	14
Above average	0.2	38
Strong	0.2	70
	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

=(0.2*-38)+(0.1*-14)+(0.3*14)+(0.2*38)+(0.2*70)=16.8%

Probability	Return	Probability*(Return-Expected return)^2
0.2	-38	0.2*(-38-16.8)^2=600.608
0.1	-14	0.1*(-14-16.8)^2=94.864
0.3	14	0.3*(14-16.8)^2=2.352
0.2	38	0.2*(38-16.8)^2=89.888
0.2	70	0.2*(70-16.8)^2=566.048
		Total=1353.76%

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

=(1353.76)^(1/2)

=36.79%(Approx)

Coefficient of variation=Standard deviation/Expected return

=36.79/16.8

=2.19(Approx).