Question

A stock's returns have the following distribution: Demand for the Company's Products Probability of This Demand Occurring Rate of Return If This Demand Occurs Weak 0.1 (46%) Below average 0.1 (14) Average 0.3 10 Above average 0.3 29 Strong 0.2 49 1.0 Assume the risk-free rate is 3%. 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: % Standard deviation: % Coefficient of variation: Sharpe ratio:

Answer 1

D2 v : x B A E F G H 1 Return (r) -46% -14% 10% 29% fix =+A2-$C$8 C D Expected return [rxP(r)= u] -4.60% -61.50% -1.40% -29.50% 3.00% -5.50% 8.70% 13.50% 9 .80% 33.50% Probability [(P(r)] 0.10 0.101 0.30 0.30 0.20 Sharpe ratio Sharpe ratio 600 v antwN (r-u)^2 37.82% 8.70% 0.30% 1.82% 11.22% P(r)x(r-u)^2 3.78% 0.87% 0.09% 0.55% 2.24% (Mean-Risk free rate/SD 0.49 =(15.5%-3%)/25.45% 49% Coefficient of variation Standard deviation Mean Coefficient of variation 1.77 8 Expected return 15.50% =27.45%/15.5% 53% Variance (012) Standard deviation (0) 27.45% 10

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