Question

Question 1: Given the following probability distributions for stock A and stock B

Probability	R_A	R_B
0.3	0.3	0.05
0.2	0.1	0.15
0.5	-0.02	0.25

Calculate (a) expected return, (b) standard deviation (c) coefficient of variation for each stock (analyze single stock separately: do expected return for A, standard deviation for A, CV for A. Then repeat the steps for stock B)

Answer 1

STOCK A	Probability (P)	RETURN (X)	(P * X )	P * (X -Average Return of X)^2
	30%	30	9.00	120.00
	20%	10	2.00	0.00
	50%	-2	-1.00	72.00
		TOTAL	10.00	192.00
Expected Return =		(P * X)
		10.00%
VARIANCE =		P * (X -Average Return of X)^2
		192.0000
Standard Deviation =		Square root of (P * (X -Average Return of X)^2)
		Square root of 192
		13.86
COEFFICIENT OF VARIATION=		STANDARD DEVIATION/ MEAN
		13.86 / 10
		1.386

STOCK B	Probability (P)	RETURN (Y)	(P * Y )	P * (Y -Average Return of Y)^2
	30%	5	1.50	43.20
	20%	15	3.00	0.80
	50%	25	12.50	32.00
		TOTAL	17.00	76.00
Expected Return =		(P * Y)
		17.00%
VARIANCE =		P * (Y -Average Return of Y)^2
		76.0000
Standard Deviation =		Square root of (P * (Y -Average Return of Y)^2)
		Square root of 76
		8.72
COEFFICIENT OF VARIATION=		STANDARD DEVIATION/ MEAN
		8.72 / 17
		0.5129