Stocks A and B have the following probability distributions of expected future r
ID: 2821324 • Letter: S
Question
Stocks A and B have the following probability distributions of expected future returns:
Calculate the expected rate of return, rB, for Stock B (rA = 13.40%.) Do not round intermediate calculations. Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns, A, for Stock A (B = 22.57%.) Do not round intermediate calculations. Round your answer to two decimal places.
%
Now calculate the coefficient of variation for Stock B. Round your answer to two decimal places.
Probability A B 0.1 (14%) (31%) 0.2 6 0 0.3 10 18 0.2 19 26 0.2 34 49Explanation / Answer
stock B Probability B Return * Probability Actual return Less Average Square of deviation Squsre * Probability 10% -31.00% -3.100% -48.300% 23.33% 2.3328900% 20% 0.00% 0.000% -17.300% 2.99% 0.5985800% 30% 18.00% 5.400% 0.700% 0.00% 0.0014700% 20% 26.00% 5.200% 8.700% 0.76% 0.1513800% 20% 49.00% 9.800% 31.700% 10.05% 2.0097800% Total 17.30% 5.09% Average return 17.30% Variance 5.09% SD Variance^1/2 SD 22.57% Co-efficient of variation= Standard deviation/expected value Co-efficient of variation= 22.57%/17.30% Co-efficient of variation= 1.305 stock A Probability A Return * Probability Actual return Less Average Square of deviation Squsre * Probability 10% -14.00% -1.400% -27.400% 7.51% 0.7507600% 20% 6.00% 1.200% -7.400% 0.55% 0.1095200% 30% 10.00% 3.000% -3.400% 0.12% 0.0346800% 20% 19.00% 3.800% 5.600% 0.31% 0.0627200% 20% 34.00% 6.800% 20.600% 4.24% 0.8487200% Total 13.40% 1.81% Average return 13.40% Variance 1.81% SD Variance^1/2 SD 13.44%
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