Phoenix Company common stock is currently selling for $20 per share. Security an

Question

Phoenix Company common stock is currently selling for $20 per share. Security analysts at Smith Blarney have assigned the following probability distribution to the price of (and rate of return on) Phoenix stock one year from now:

Price                    Rate of Return                              Probability

$16                         -20%                                               0.25

20                             0%                                                0.30

24                          +20%                                                0.25

28                           +40%                                                0.20

Assuming that Phoenix is not expected to pay any dividends during the coming year, determine the coefficient of variation for the rate of return on Phoenix stock.

Choose Correct Answer

a. 0.275 b. 2.61 c. 2.68 d. 0.0

Explanation / Answer

Answer is B) 2.585

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