Question

General Meter is considering two mergers. The first is with Firm A. in its own volate industry. the auto speedometer industry, while the second is a merger with Firm B in an industry that moves in the opposite direction (and will tend to level out performance due to negative correlation).
General Meter Merger/Firm
possible earnings in Mil. $45. 50 and 55. probability. 20. .20 and .60.

General Meters Merger with Firm B.
possible earning in Mil. $45, 50 and 55.
Probability is .15. .30. and. 55
a. compute the means. standard deviation, and coefficient of variations for both investments.

Answer 1

Mean or Expected Return =

Mean A = (45*0.2 + 50*0.2 + 55*0.6) = 52

Mean B = (45*0.15 + 50*0.3 + 55*0.55) = 52

Standard Deviation =

Standard Deviation A

Given Return(a)	Expected Return(b)	(a-b)^2	Probability	SD
45	52	49	0.2	9.8
50	52	4	0.2	0.8
55	52	9	0.6	5.4
			Total	16

SD = (16)^0.5 = 4

Standard Deviation B

Given Return(a)	Expected Return(b)	(a-b)^2	Probability	SD
45	52	49	0.15	7.35
50	52	4	0.3	1.2
55	52	9	0.55	4.95
			Total	13.5

SD = (13.5)^0.5 = 3.67

coefficient of variation A =

= 4/52 = 7.69%

CV B = 3.67/52 = 7.07%