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 |
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
=(0.2*-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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