Problem 8-1 Expected return A stock\'s returns have the following distribution:
ID: 2780444 • Letter: P
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 theCompany'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%