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Problem 13-4 Coefficient of variation [LO13-1] Shack Homebuilders Limited is evaluating a new promotional campaign that...

Problem 13-4 Coefficient of variation [LO13-1]

Shack Homebuilders Limited is evaluating a new promotional campaign that could increase home sales. Possible outcomes and probabilities of the outcomes are shown next.     

Possible Outcomes Additional
Sales in Units		 Probabilities
Ineffective campaign 20 0.40
Normal response 110 0.40
Extremely effective 140 0.20


Compute the coefficient of variation. (Do not round intermediate calculations. Round your answer to 3 decimal places.)

Solutions

Expert Solution

Expected sales=Respective sales*Respective probability

=(0.4*20)+(0.4*110)+(0.2*140)

=80

probability Sales probability*(Sales-Expected sales)^2
0.4 20 0.4*(20-80)^2=1440
0.4 110 0.4*(110-80)^2=360
0.2 140 0.2*(140-80)^2=720
Total=2520

Standard deviation=[Total probability*(Sales-Expected sales)^2/Total probability]^(1/2)

=(2520)^(1/2)

=50.2(Approx)

Coefficient of variation=Standard deviation/Expected sales

=50.2/80

=0.628(Approx)

jeff jeffy answered 1 year ago
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