Question

Quantitative Problem: You are given the following probability distribution for CHC Enterprises: State of Economy Probability Rate of return 0.2 20% Strong Normal Weak 0.5 8% -4% 0.3 What is the stock's expected return? Round your answer to 2 decimal places. Do not round intermediate calculations. X%

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

Expected return=Respective return*Respective probability

=(0.2*20)+(0.5*8)+(0.3*-4)=6.8%

Probability	Return	Probability*(Return-Expected Return)^2
0.2	20	0.2*(20-6.8)^2=34.848
0.5	8	0.5*(8-6.8)^2=0.72
0.3	-4	0.3*(-4-6.8)^2=34.992
		Total=70.56%

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

=(70.56)^(1/2)

=8.4%

Coefficient of variation=Standard deviation/Expected return

=8.4/6.8

=1.24(Approx).