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 Demand Occurring This Demand Occurs Weak Below average Average Above average Strong Probability of This Rate of Return If 0.1 0.1 0.4 0.1 0.3 1.0 (2696) (15) 18 37 59 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

Explanation / Answer

Expected return=Respective return*Respective probability

=(0.1*-26)+(0.1*-15)+(0.4*18)+(0.1*37)+(0.3*59)=24.50%

Standard deviation=[Total probability*(Return-Mean)^2/Total probability]^(1/2)

=28.30%(Approx)

Coefficient of variation=Standard deviation/mean

=(28.30/24.5)=1.15(Approx).

probability Return probability*(Return-Mean)^2 0.1 -26 0.1*(-26-24.5)^2=255.025 0.1 -15 0.1*(-15-24.5)^2=156.025 0.4 18 0.4*(18-24.5)^2=16.9 0.1 37 0.1*(37-24.5)^2=15.625 0.3 59 0.3*(59-24.5)^2=357.075 Total=800.65%

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