Question

Expected Return: Discrete Distribution

A stock's return has the following distribution:

Demand for the Company's Products	Probability of This Demand Occurring			Rate of Return if This Demand Occurs (%)
Weak		0.1		-50	%
Below average		0.2		-8
Average		0.4		15
Above average		0.2		20
Strong		0.1		60
		1.0

Calculate the stock's expected return. Round your answer to two decimal places.

  %

Calculate the standard deviation. Do not round intermediate calculations. Round your answer to two decimal places.

  %

Answer 1

Solution :

The stock's expected return = 9.40 %  ( when rounded off to two decimal places )

The stock's standard deviation = 26.5413 %

= 26.54 % ( when rounded off to two decimal places )

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.