Quantitative Problem: You are given the following probability distribution for C

Question

Quantitative Problem: You are given the following probability distribution for CHC Enterprises: State of Economy Probability Rate of return Strong 0.25 18% Normal 0.55 8 Weak 0.2 -6

1) What is the stock's expected return? Round your answer to 2 decimal places. Do not round intermediate calculations.

2) % What is the stock's standard deviation? Round your answer to two decimal places. Do not round intermediate calculations.

3) % What is the stock's coefficient of variation? Round your answer to two decimal places. Do not round intermediate calculations.

Explanation / Answer

Expected return = 7.70%

standard dev = 8.0069% (square root of sum of last column)

CoV = 1.04 (standard dev/ expected return)

p(x) return p*x p*(x - mean)^2 0.25 18.0% 0.045 0.0026523 0.55 8.0% 0.044 0.0000050 0.2 -6.0% -0.012 0.0037538

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