Question

Problem 8.01 (Expected Return) Question 1 Check My Work (No more tries availal eBook A stock's returns have the following distribution: Demand for the Probability of This Rate of Return If Company's Products Demand Occurring This Demand Occurs Weak (30%) (10) Below average Average Above average Strong Assume the risk-free rate is 4% Calculate the stock's expected return, standard deviation coefficient of variation, and Sharpe ratio. Do not round Intermediate calculations. Round your answers to two decimal places. Stock's expected return: 9.7 Standard deviation: Coefficient of variation: Sharpe ratio: 1.01 9.61 .99 $ Hide Feedback Partially Correct MacBook Pro

Answer 1

Demand for company product	probability	rate of return if demand occurs	rate of return-average return	square of (rate of return-average return)	probability*square of (rate of return-average rate of return)
Weak	0.2	-30	-39.7	1576.09	315.218
below average	0.1	-10	-19.7	388.09	38.809
average	0.3	17	7.3	53.29	15.987
above average	0.3	21	11.3	127.69	38.307
strong	0.1	53	43.3	1874.89	187.489
Average rate of return	9.7
variance = sum of probability*(rate of return-average rate of return					595.81
Standard deviation =	√variance	√595.81			24.41
coefficient of variation = standard deviation/average rate of return	24.41/9.7				251.65%
Sharpe ratio = (average rate of return-risk free rate)/standard deviation	(9.7-4)/24.41				23.35%