In: Finance
A stock's returns have the following distribution:
Demand for the Company's Products |
Probability of This Demand Occurring |
Rate of Return If This Demand Occurs |
Weak | 0.1 | (34%) |
Below average | 0.1 | (14) |
Average | 0.3 | 11 |
Above average | 0.3 | 38 |
Strong | 0.2 | 45 |
1.0 |
Assume the risk-free rate is 4%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places.
Stock's expected return: %
Standard deviation: %
Coefficient of variation:
Sharpe ratio:
Ans:-
The expected return is 28.50% and Standard deviation will be 197.45 ^(1/2) = 14.05%
Standard deviation (SD) is calculated by taking the square root of variance.
Coefficient of variation (COV) is calculated by SD / Expected return or Mean = 14.05 / 28.50 = 0.49
Sharpe ratio = ( Expected return - Risk-free rate ) / SD =(28.50 - 4 ) /14.05 = 1.74
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