PLEASE SHOW WORK An analyst has estimated how a particular stock\'s return will
ID: 2733903 • Letter: P
Question
PLEASE SHOW WORK
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?
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
Answer: Coefficient of variation=2.472
standard deviation=Square root of 1375%
=37.08%
Coefficient of variation=Standard deviation/Expected return
=37.08%/15%
=2.472
A B C=A*B D=B-15% E F=E*A State of Economy Probability State Expected return Expected return Deviation Square of Deviation variance Recession 0.1 -60% -6% -75% 5625% 562.50% Below average 0.2 -10% -2% -25% 625% 125.00% Average 0.4 15% 6% 0% 0% 0.00% Above average 0.2 40% 8% 25% 625% 125.00% Boom 0.1 90% 9% 75% 5625% 562.50% Total 15% 1375.00%Related Questions
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