Question

Click here to read the eBook: Stand Alone Risk EXPECTED RETURN 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 (40%) Below average (13) Average Above average Strong 0.1 1.0 a. Calculate the stock's expected return. Round your answer to two decimal places. % b. Calculate the stock's standard deviation. Do not round intermediate calculations. Round your answer to two decimal places. C. Calculate the stock's coefficient of variation. Round your answer to two decimal places.

Answer 1

Demand	Probabilty	Return	Probability* Return	Return- Expected Return[D]	Probability* D^2[D*D]
Weak	0.1	-0.4	-0.04	-0.517	0.0267289
Below Average	0.2	-0.13	-0.026	-0.247	0.0122018
Average	0.4	0.14	0.056	0.023	0.0002116
Above Average	0.2	0.35	0.07	0.233	0.0108578
Strong	0.1	0.57	0.057	0.453	0.0205209
	Expected Return = Sum of Probabilty*Return	0.117	Variance =Sum of [D^2]	0.070521
				Standard Deviation =Variance^1/2	0.265557903
			Co Efficient of Variation = Standard Deviation/Mean i.e. Expected Return	0.265557903/0.117	2.269725669

a) Expected Return = 11.7%

b) Standard Deviation = 26.56%

c) Co Efficient of Variation = 2.27