Question

State of Economy	Probability	Rate of return
Strong	0.25	19%
Normal	0.5	8
Weak	0.25	-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

1)

Expected return = Probabilities * returns

Expected return = 0.25*0.19 + 0.5*0.08 + 0.25*(-0.04)

Expected return = 0.0475 + 0.04 - 0.01

Expected return = 0.0775 or 7.75%

2)

Standard deviation = [0.25(0.19 - 0.0775)^2 + 0.5(0.08 - 0.0775)^2 + 0.25(-0.04 - 0.0775)^2]^1/2

Standard deviation = [0.003164 + 0.000003 + 0.003452]^1/2

Standard deviation = 0.0814 or 8.14%

3)

coefficient of variation = Standard deviation / return

coefficient of variation = 0.0814 / 0.0775

coefficient of variation = 1.05