A stock\'s returns have the following distribution: a. Calculate the stock\'s ex

Question

A stock's returns have the following distribution:

  

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 places.

Demand for the
Company's Products Probability of This
Demand Occurring Rate of Return If
This Demand Occurs Weak 0.2 -46% Below average 0.2 -14    Average 0.3 17   Above average 0.2 30   Strong 0.1 59   1.0

Explanation / Answer

a.stock's expected return = 0.2*(-46%) + 0.2*(-14%) + 0.3*17% + 0.2*30%+ 0.1*59% =5%

b. stock's standard deviation = sqrt(0.2*(-46%-5%)^2 + 0.2*(-14%-5%)^2 + 0.3*(17%-5%)^2 + 0.2*(30%-5%)^2+ 0.1*(59%-5%)^2)= 32.44%

c. coefficient of variation represents the ratio of the standard deviation to the mean

coefficient of variation =32.44%/5%=6.49%

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