Question

Risk and Rates of Return: Stand-Alone Risk

Quantitative Problem: You are given the following probability distribution for CHC Enterprises: State of Economy Probability Rate of return Strong 0.25 18% Normal 0.5 8% Weak 0.25 -6% What is the stock's expected return? Round your answer to 2 decimal places. Do not round intermediate calculations. % 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

Ε F 011 - A Stock B 10 Returns (n) 11 18% 12 8% 13 -6% X fx =A11-$C$15 B C D Probability Expecte return [(P(r)] [rxP(r)= u] r- 0.25 4.50% 11.00% 0.50 4.00% 1.00% 0.25 -1.50% -13.00% (r-u)^2 1.21% 0.01% 1.69% P(r)x(r-u)^2 0.30% 0.01% 0.42% Expected return 7.00% Variance (o^2) Standard deviation (0) 0.007300 8.54%

Coefficient of variation Coefficient of variation Standard deviation Mean 1.22 =8.54%/7%

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