Question

The expected value, standard deviation of returns, and coefficient of variation for asset A are ________. (See table below.)

Possible Outcomes	Probability	Returns (%)
Pessimistic	0.25	5%
Most Likely	0.55	10%
Optimistic	0.20	13%

10 percent, 8 percent, and 1.25, respectively

9.35 percent, 2.76 percent, and 0.295, respectively

9.35 percent, 4.68 percent, and 2.00, respectively

9.33 percent, 8 percent, and 2.15, respectively

Answer 1

Expected Value=Sum of (Probability of possible outcome * Return) =0.25*5+0.55*10+0.20*13=9.35%

Variance=Sum of Probability*(Expected Return in a scenerio-Expected Return)^2 =0.25*(5-9.35)^2+0.55*(10-9.35)^2+0.20*(13-9.35)^2=7.62

standard deviation of returns=square root of variance=(7.62)^(1/2)=2.76

coefficient of variation =standard deviation/Expected Value=2.76/9.35=0.295