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 | (48%) |
Below average | 0.2 | (8) |
Average | 0.3 | 17 |
Above average | 0.2 | 28 |
Strong | 0.1 | 71 |
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 probabilities
=(0.2*-48)+(0.2*-8)+(0.3*17)+(0.2*28)+(0.1*71)=6.6%
Probability | Return | Probability*(REturn-mean)^2 |
0.2 | -48 | 0.2*(-48-6.6)^2=596.232 |
0.2 | -8 | 0.2*(-8-6.6)^2=42.632 |
0.3 | 17 | 0.3*(17-6.6)^2=32.448 |
0.2 | 28 | 0.2*(28-6.6)^2=91.592 |
0.1 | 71 | 0.1*(71-6.6)^2=414.736 |
Total=1177.64 |
SD=[Total Probability*(REturn-mean)^2/Total
Probability]^(1/2)
which is equal to
=34.32%(Approx)
CV=SD/mean
=(34.32/6.6)=5.20(Approx).
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