An analyst has estimated how a particular stock\'s return will vary depending on
ID: 2621217 • Letter: A
Question
An analyst has estimated how a particular stock's return will vary depending on what will happen to the economy:
State of
Probability of
Stock's Expected Return
the Economy
State Occurring
if this State Occurs
Recession
0.10
-60%
Below Average
0.20
-10
Average
0.40
15
Above Average
0.20
40
Boom
0.10
90
What is the coefficient of variation on the company's stock? (Use the population standard deviation to calculate the coefficient of variation.)
a.
2.121
b.
2.201
c.
2.472
d.
3.334
e.
3.727
State of
Probability of
Stock's Expected Return
the Economy
State Occurring
if this State Occurs
Recession
0.10
-60%
Below Average
0.20
-10
Average
0.40
15
Above Average
0.20
40
Boom
0.10
90
Explanation / Answer
Coefficient Of Variation = Standard Deviation/ Mean
= 37.08/15
= 2.472
Hence, the correct answer is c. 2.472
Notes:
1. Mean :
2. Standard Deviation :
Probability Stock A Expected Return ( Probability * Expected Return) Recession 0.10 (0.60) -0.0600 Below Average 0.20 (0.10) -0.0200 Average 0.40 0.15 0.0600 Above Average 0.20 0.40 0.0800 Boom 0.10 0.90 0.0900 Expected Return 0.1500 Expected Return % 15.00Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.