Question

Please solve and explain

15-3     The market and Stock S have the following probability distributions:

Probability	rm	rs
0.3	15%	20%
0.4	9	5
0.3	18	12

1. Calculate the expected rates of return for the market and Stock S.
2. Calculate the standard deviations for the market and Stock S.
3. Calculate the coefficients of variation for the market and Stock S.

Answer 1

	Probability (P)	RETURN (Y)	(P * Y )	P * (Y -Average Return of Y)^2
	30.00%	15.00	4.50	0.68
	40.00%	9.00	3.60	8.10
	30.00%	18.00	5.40	6.08
		TOTAL	13.50	14.85
Expected Return =		(P * Y)
		13.50%
VARIANCE =		P * (Y -Average Return of Y)^2
		14.8500
Standard Deviation =		Square root of (P * (Y -Average Return of Y)^2)
		Square root of 14.85
		3.85
COEFFICIENT OF VARIATION=		STANDARD DEVIATION/ MEAN
		3.85 / 13.50
		0.29