Part A:
Expected Ret = Sum [ Prob * ret ]
Demand | Prob | Ret | Expected Ret |
Weak | 0.1 | -0.3 | -0.0300 |
Below Avg | 0.1 | -0.1 | -0.0100 |
Avg | 0.3 | 0.18 | 0.0540 |
Above Avg | 0.3 | 0.36 | 0.1080 |
Strong | 0.2 | 0.5 | 0.1000 |
Expected Ret | 0.2220 |
Part B:
SD = sum [ Prob * ( X - Avg X)^2 ]
Demand | Prob | Ret | Ret -Avg Ret | (Ret -Avg Ret)^2 | Prob*(Ret -Avg Ret)^2 |
Weak | 0.1 | -0.3 | -0.5220 | 0.272484 | 0.0272 |
Below Avg | 0.1 | -0.1 | -0.3220 | 0.103684 | 0.0104 |
Avg | 0.3 | 0.18 | -0.0420 | 0.001764 | 0.0005 |
Above Avg | 0.3 | 0.36 | 0.1380 | 0.019044 | 0.0057 |
Strong | 0.2 | 0.5 | 0.2780 | 0.077284 | 0.0155 |
Sum [ Prob * [ (Ret - Abg Ret)^2] ] | 0.0593 |
Part C:
Coeeficient of Variation = SD / Expected Ret
= 0.0593 / 0.2220
= 0.2672
Part D:
SharpeRatio = [ Expected Ret - Rf ] / SD
= [ 0.2220 - 0.03 ] / 0.0593
= 0.192 / 0.0593
= 3.24
Pls comment, if any further assistance is required.
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