Question

# A stock's returns have the following distribution: Demand for the Company's Products Probability of This Demand...

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.

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).

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