Question

A stock's returns have the following distribution:

Demand for theCompany's Products |
Probability of ThisDemand Occurring |
Rate of Return IfThis Demand Occurs |

Weak | 0.2 | (36%) |

Below average | 0.1 | (7) |

Average | 0.3 | 18 |

Above average | 0.2 | 27 |

Strong | 0.2 | 48 |

1.0 |

Assume the risk-free rate is 3%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places.

Stock's expected return: %

Standard deviation: %

Coefficient of variation:

Sharpe ratio:

Answer #1

Stock's expected return = Summation of (Probability of the scenario*Expected return in that scenario)

Stock's expected return = 0.2*(-36%)+ 0.1*(-7%) + 0.3*18% + 0.2*27% + 0.2*48%

**Stock's expected return = 12.5%**

Variance = Summation of (Probability of the scenario*(Expected return in that scenario-Expected return)^2)

Variance = 0.2*(-36%-12.5%)^2 + 0.1*(-7%-12.5%)^2 + 0.3*(18%-12.5%)^2 + 0.2*(27%-12.5%)^2 + 0.2*(48%-12.5%)^2

Variance = 0.081165

Standard deviation = Variance^0.5 = 0.081165^0.5

**Standard deviation = 0.2849 = 28.49%**

Coefficient of variation = Standard deviation/Expected return = 0.2849/0.125

**Coefficient of variation = 2.2792**

Sharpe's ratio = (Expected return-Riskfree rate)/Standard deviation

Sharpe's ratio = (0.125-0.03)/0.2849

**Sharpe's ratio = 0.3334**

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 0.1 (48%) Below average 0.2 (11)
Average 0.3 11 Above average 0.1 24 Strong 0.3 54 1.0 Assume the
risk-free rate is 2%. Calculate the stock's expected return,
standard deviation, coefficient of variation, and Sharpe ratio. Do
not round intermediate calculations. Round your answers to two
decimal places. Stock's expected return: % Standard deviation: %...

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
0.1
(24%)
Below average
0.1
(13)
Average
0.3
12
Above average
0.3
29
Strong
0.2
48
1.0
Assume the risk-free rate is 3%. Calculate the stock's expected
return, standard deviation, coefficient of variation, and Sharpe
ratio. Do not round intermediate calculations. Round your answers
to two decimal places.
Stock's expected return: %
Standard deviation: %
Coefficient of...

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
0.1
(38%)
Below average
0.2
(15)
Average
0.3
12
Above average
0.3
36
Strong
0.1
61
1.0
Assume the risk-free rate is 2%. Calculate the stock's expected
return, standard deviation, coefficient of variation, and Sharpe
ratio. Do not round intermediate calculations. Round your answers
to two decimal places.
Stock's expected return:
Standard deviation:
Coefficient of...

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 0.1 (42%) Below average 0.2 (15)
Average 0.3 17 Above average 0.3 36 Strong 0.1 63 1.0 Assume the
risk-free rate is 2%.
Calculate the stock's expected return, standard deviation,
coefficient of variation, and Sharpe ratio. Do not round
intermediate calculations. Round your answers to two decimal
places. Stock's expected return: % Standard deviation: %...

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
(44%)
Below average
0.1
(6)
Average
0.3
13
Above average
0.1
37
Strong
0.3
64
1.0
Assume the risk-free rate is 2%. Calculate the stock's expected
return, standard deviation, coefficient of variation, and Sharpe
ratio. Do not round intermediate calculations. Round your answers
to two decimal places.
Stock's expected return: %
Standard deviation: %
Coefficient of...

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
0.1
(26%)
Below average
0.2
(14)
Average
0.3
18
Above average
0.3
30
Strong
0.1
53
1.0
Assume the risk-free rate is 4%. Calculate the stock's expected
return, standard deviation, coefficient of variation, and Sharpe
ratio. Do not round intermediate calculations. Round your answers
to two decimal places.
Stock's expected return: %
Standard deviation: %
Coefficient of...

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
0.1
(30%)
Below average
0.2
(13)
Average
0.3
16
Above average
0.3
37
Strong
0.1
61
1.0
Assume the risk-free rate is 2%. Calculate the stock's expected
return, standard deviation, coefficient of variation, and Sharpe
ratio. Do not round intermediate calculations. Round your answers
to two decimal places.
Stock's expected return: %
Standard deviation: %
Coefficient of...

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
0.1
(26%)
Below average
0.2
(14)
Average
0.3
13
Above average
0.3
29
Strong
0.1
46
1.0
Assume the risk-free rate is 2%. Calculate the stock's expected
return, standard deviation, coefficient of variation, and Sharpe
ratio. Do not round intermediate calculations. Round your answers
to two decimal places.
Stock's expected return: %_____
Standard deviation: %______
Coefficient of...

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
0.1
(32%)
Below average
0.2
(13)
Average
0.3
14
Above average
0.3
39
Strong
0.1
53
1.0
Assume the risk-free rate is 2%. Calculate the stock's expected
return, standard deviation, coefficient of variation, and Sharpe
ratio. Do not round intermediate calculations. Round your answers
to two decimal places.
Stock's expected return: %
Standard deviation: %
Coefficient of...

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
0.1
(30%)
Below average
0.2
(14)
Average
0.3
17
Above average
0.3
26
Strong
0.1
51
1.0
Assume the risk-free rate is 2%. Calculate the stock's expected
return, standard deviation, coefficient of variation, and Sharpe
ratio. Do not round intermediate calculations. Round your answers
to two decimal places.
Stock's expected return: %
Standard deviation: %
Coefficient of...

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