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

Question

1) 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. 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.

_______%

Demand for the
Company's Products Probability of This
Demand Occurring Rate of Return If
This Demand Occurs Weak 0.1 (36%) Below average 0.4 (8)    Average 0.3 15   Above average 0.1 25   Strong 0.1 60   1.0

Explanation / Answer

a.Expected Return=Respective Return*Respective Probability

=(0.1*-36)+(0.4*-8)+(0.3*15)+(0.1*25)+(0.1*60)

=6.2%

b.

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

=(606.76)^(1/2)

which is equal to

=24.63%(Approx)

Coefficient of variation=Standard Deviation/Expected Return

=(24.63/6.2)

which is equal to

=3.97(Approx).

Probability Return Probability*(Return-Expected Return)^2 0.1 -36 0.1*(-36-6.2)^2=178.084 0.4 -8 0.4*(-8-6.2)^2=80.656 0.3 15 0.3*(15-6.2)^2=23.232 0.1 25 0.1*(25-6.2)^2=35.344 0.1 60 0.1*(60-6.2)^2=289.444 Total=606.76%

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