Question: Expected Return : A stocks return have the following distribution: Demand for the Companys Products Probability of This Demand Occurring Rate of Return if This
Expected Return: A stocks return have the following distribution:
| Demand for the Companys Products | Probability of This Demand Occurring | Rate of Return if This Demand Occurs |
| Weak | 0.1 | (30%) |
| Below Average | 0.1 | (14) |
| Average | 0.3 | 11 |
| Above Average | 0.3 | 20 |
| Strong | 0.2 | 45 |
1.0
Calculate the stocks expected return, standard deviation, and coefficient of variation.
I know that the stock's expected return is 0.139, the standard deviation is 0.2186, and the coefficient of variation is 1.57. I believe that my approach is correct with stock's expected return, but please show me where I messed up with standard deviation and coefficient of variation. Provide the formula and steps. Thank you.
Stocks Expected Return:
0.1 * -30% + 0.1 * -14% + 0.3 * 11% + 0.3 * 20% + 0.2 * 45%
0.1 * -.3 + 0.1 * -.14 + 0.3 * .11 + 0.3 * .2 + 0.2 * .45
-.03 + -.014 + .033 + .06 + .09 = .139 * 100 = 13.9%
Standard Deviation:
Standard Deviation = Probability * (Rate of Return Expected Return)2
0.1 * (-30% - 13.9%)2 + 0.1 * (-14% - 13.9%)2 + 0.3 * (11% - 13.9%)2 + 0.3 * (20% - 13.9%)2 + 0.2 * (45% - 13.9%)2
0.1 * (-.3 - .139)2 + 0.1 * (-.14 - .139)2 + 0.3 * (.11 - .139)2 + 0.3 * (.2 - .139)2 + 0.2 * (.45 - .139)2
0.1 * .192721 + 0.1 * .077841 + 0.3 * .000841 + 0.3 * .003721 + 0.2 * .096721
.0192721 + .0077841 + .0002523 + .0011163 + .0193442 = .07
Coefficient of Variation:
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