Problem 8-1 Expected return A stock\'s returns have the following distribution:
ID: 2620971 • Letter: P
Question
Problem 8-1 Expected return A stock's returns have the following distribution: Demand for the Company's Products Demand Occurring This Demand Occurs Weak Below average Average Above average Strong Probability of This Rate of Return If -40% -13 10 0.2 0.1 0.3 0.3 0.1 1.0 72 a. Calculate the stock's expected return. Round your answer to two decimal places b. Calculate the stock's standard deviation. Round your answer to two decimal places. C. Calculate the stock's coefficient of variation. Round your answer to two decimal placesExplanation / Answer
Expected return=Respective return*Respective probability
=(0.2*-40)+(0.1*-13)+(0.3*10)+(0.3*39)+(0.1*72)=12.6%
Standard deviation=[Total probability*(Return-Mean)^2/Total probability]^(1/2)
=34.39%(Approx)
Coefficient of variation=Standard deviation/Expected return
=(34.39/12.6)=2.73(Approx).
probability Return probability*(Return-Mean)^2 0.2 -40 0.2*(-40-12.6)^2=553.352 0.1 -13 0.1*(-13-12.6)^2=65.536 0.3 10 0.3*(10-12.6)^2=2.028 0.3 39 0.3*(39-12.6)^2=209.088 0.1 72 0.1*(72-12.6)^2=352.836 Total=1182.84