Quantitative Problem: You are given the following probability distribution for CHC Enterprises: State of Economy Probability...

Quantitative Problem: You are given the following probability distribution for CHC Enterprises:

State of Economy	Probability	Rate of return

Strong	0.15	20	%
Normal	0.55	9	%
Weak	0.30	-5	%

What is the stock's expected return? Do not round intermediate calculations. Round your answer to two decimal places.

What is the stock's standard deviation? Do not round intermediate calculations. Round your answer to two decimal places.

What is the stock's coefficient of variation? Do not round intermediate calculations. Round your answer to two decimal places.

Solutions

Expert Solution

Stock's Expected Return =0.15*20%+0.55*9%+0.30*-5% =6.45%
Stock's Standard Deviation =(0.15*(20%-6.45%)^2+0.55*(9%-6.45%)^2+0.30*(-5%-6.45%)^2)^0.5=8.3933%
Stock's Coefficient of Variation =Standard Deviation/Expected Return =8.3933%/6.45%=1.30

jeff jeffy answered 2 years ago

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