Question

Quantitative Problem: You are given the following probability distribution for CHC Enterprises: State of Economy Probability Rate of Return Strong 0.2 19% Normal 0.5 9% Weak 0.3 -6% What is the stock's expected return? Round your answer to 2 decimal places. Do not round intermediate calculations. What is the stock's standard deviation? Round your answer to two decimal places. Do not round intermediate calculations. What is the stock's coefficient of variation? Round your answer to two decimal places. Do not round intermediate calculations.

Answer 1

Please find the solution in given screen shot,

State of Economy Probability Return on Stock 20% 50% 9% 30% -6% Strong Normal Weak 19% Probability Square of Difference Refer Calculation of Expected Return & Standard Deviation Probability Return on X Difference State of Economy Probability Stock Return on with Mean Stock D Strong 0.20 0.19 0.0380 0.1250 Normal 0.50 0.09 0.0450 0.0250 Weak 0.30 -0.06 (0.0180) (0.1250) Expected 0.0650 Return 0.0156 0.0006 0.0156 Square of Difference 0.0031 0.0003 0.0047 WN-1 Variance 0.0081 6.50% Standard Deviation L 0.0901 9 .01% Calculation of Coefficient of Variation Coefficient of Variation = (Standard Deviation/Expected Return) 138.68% WN-1 Expected Return (Mean) = Summation of "Probability X Return on Stock" Variance = Summation of "Probability X Square of Difference" Standard Deviation = Square Root of Variance Steps 1) Calculate the Mean of Stock which is nothing but expected Return 2) Calculate the Variance of Stock 3) Calculate the Standard Deviation Stock 4) Using the Expected Return (Mean) and Standard Deviation Calculate the Coefficient of Variation