Question

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	0.2	(24%)
Below average	0.2	(12)
Average	0.4	16
Above average	0.1	22
Strong	0.1	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 Sales=Respective sales*Respective probability

=(0.2*-24)+(0.2*-12)+(0.4*16)+(0.1*22)+(0.1*70)=8.4%

probability	Return	probability*(Return-Expected Return)^2
0.2	-24	0.2*(-24-8.4)^2=209.952
0.2	-12	0.2*(-12-8.4)^2=83.232
0.4	16	0.4*(16-8.4)^2=23.104
0.1	22	01*(22-8.4)^2=18.496
0.1	70	0.1*(70-8.4)^2=379.456
		Total=714.24%

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

=26.73%(Approx).

Coefficient of variation=Standard deviation/Expected Return

=(26.73/8.4)=3.18(Approx).