Question

dule 5 Homework eBook Problem Walk-Through A stock's returns have the following distribution: Probability of this Demand Occurring Rate of Return If This Demand Occurs Demand for the Company's Products Weak Below average Average Above average Strong (38%) (13) Assume the risk-free rate is 3%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sh calculations. Round your answers to two decimal places. Stock's expected return: % 15.8 % Standard deviation: 1 Coefficient of variation: Sharpe ratio: Grade it Now Save & Continue

Answer 1

I have attached the excel sheet with 2 images, one showing final value obtained and second showing formulas used:-

Expected Return of Stock :-

А в Demand Probability Rate of Return (%) 0.1 Weak Below Average Average Above Average Strong -38% -13% 12% 36% 53% 0.3 0.1 Expected Return (Mean) 15.8%

A Demand Probability Rate of Return (%) Weak 0.1 Below Average 0.1 Average 0.4 Above Average 0.3 Strong 0.1 -0.38 -0.13 0.12 0.36 0.53 Expected Return (Mean) =(C5*D5)+(C6*D6)+(C7*D7)+(C8*D8)+(C9*D9)

Standard Deviation :-

Variance is calculated by taking the differences between each number in the data set and the mean, then squaring the differences and finally dividing the "sum of the squares" by the number of values in the data set.

Standard deviation is calculated as the square root of the variance.

Demand Probability Rate of Return (%) Variances Weak Below Average Average Above Average Strong -38% -13% 12% 36% 53% 0.029 0.008 0.001 0.012 0.014 Expected Return (Mean) 15.8% Variance 0.013 Standard Deviation 11.30%

Demand Probability Rate of Return (%) Variances Weak 0.1 Below Average 0.1 Average 0.4 Above Average 0.3 Strong -0.38 -0.13 0.12 0.36 0.53 = (D5-$D$11)^2*C5 =(D6-$D$11)^2*C6 =(D7-$D$11)^2*07 =(D8-$D$11)^2*08 = (D9-$D$11)^2*09 Expected Return (Mean) =(C5*D5)+(C6*D6)+(C7*D7)+(C8*D8)+(C9*D9) Variance =SUM(E5:E9)/5 Standard Deviation =SQRT(D13) 16

Standard Deviation = 11.3%

Co-efficient of Variation:-

The coefficient of variation (CV) is defined as the ratio of the standard deviation to the mean.

Hence, CV = 11.3 / 15.8 = 0.715

Sharpe Ratio :-

Sharpe Ratio is defined as the excess return per unit of risk and its formula is :-

(Expected Return - Risk free Rate) / (Standard Deviation) = (15.8 - 3) / 11.30 = 1.13