Problem 8-1 Expected return A stock\'s returns have the following distribution:

Question

Problem 8-1
Expected return

A stock's returns have the following distribution:

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. _______

Problem 8-1
Expected return

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 -14    Average 0.3 17   Above average 0.1 22   Strong 0.3 62   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. _______

Explanation / Answer

Expected return=Respective return*Respective probabilities

=(0.1*-32)+(0.2*-14)+(0.3*17)+(0.1*22)+(0.3*62)=19.9%

SD=[Total of Probability*(Return-Mean)^2/Total probability]^(1/2)

=32.15%(Approx)

CV=SD/Mean

=(32.15/19.9)=1.62(Approx).

Probability Return Probability*(return-mean)^2 0.1 -32 0.1*(-32-19.9)^2=269.361 0.2 -14 0.2*(-14-19.9)^2=229.842 0.3 17 0.3*(17-19.9)^2=2.523 0.1 22 0.1*(22-19.9)^2=0.441 0.3 62 0.3*(62-19.9)^2=531.723 Total=1033.89%

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