Quantitative Problem You are given the following probability

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

What is the stock\'s expected return? Round your answer to 2 decimal places. Do not round intermediate calculations.
%

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

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

State of Economy	Probability	Rate of return
Strong	0.15	21%
Normal	0.45	10%
Weak	0.4	-6%

Solution

Solution: a. stock\'s expected return 5.25% Working Notes: Expected return Er= Sum of (Returns x probability of return) =21% x 0.15 + 10% x 0.45+ (-6%) x 0.40 =0.0525 =5.25 % b. stock\'s standard deviation (s.d.) 9.90% Working Notes: Standard deviation of return = Square root of ( Sum of (Prob. x (return - expected return )^2)) Standard deviation = Square root of ((21% -5.25%)^2 x 0.15 + (10% -5.25%)^2x 0.45 + (-6% -5.25%)^2x 0.40) Standard deviation of return = Square root of ( 97.9875) Standard deviation of return = (97.9875)^(1/2) Standard deviation of return = 9.898863571% Standard deviation of return = 9.90% C. Coefficient of variation for Stock 1.89 Working Notes: Coefficient of Variation = Standard Deviation of stock / Expected return of stock = 9.898863571%/5.25% =1.885497823 =1.89 Please feel free to ask if anything about above solution in comment section of the question.