A stock\'s returns have the following distribution: Demand for the Company\'s Pr

Question

A stock's returns have the following distribution:

Demand for the Company's Products

=1.0

a. Calculate the stock's expected return. Round your answer to two decimal places.

b. Calculate the stock's standard deviation. Do not round intermediate calculations. Round your answer to two decimal places.

c. Calculate the stock's coefficient of variation. Round your answer to two decimal places.

Demand for the Company's Products Probability of This Demand Occurring Rate of Return If This Demand Occurs Weak 0.1 -22% below average 0.1 -8 Average 0.3 17 above average 0.2 30 Strong 0.3 55

Explanation / Answer

Expected return=Respective return*Respective probabilities

=(0.1*-22)+(0.1*-8)+(0.3*17)+(0.2*30)+(0.3*55)=24.6%

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

=24.98%(Approx)

CV=SD/Mean

=(24.98/24.6)=1.02(Approx).

Probability Return Probability*(return-mean)^2 0.1 -22 0.1*(-22-24.6)^2=217.156 0.1 -8 0.1*(-8-24.6)^2=106.276 0.3 17 0.3*(17-24.6)^2=17.328 0.2 30 0.2*(30-24.6)^2=5.832 0.3 55 0.3*(55-24.6)^2=277.248 Total=623.84%

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