Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
ANSWER EACH PART PLEASE!
![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 | 0.2 | (20%) |
| Below average | 0.1 | (9) |
| Average | 0.4 | 17 |
| Above average | 0.1 | 28 |
| Strong | 0.2 | 75 |
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: _______](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F552bce27-2e42-4405-9478-45c26e7ea34f%2F9b8273f0-38ac-40c2-835c-14e631fd6646%2F4fgkih_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 | 0.2 | (20%) |
| Below average | 0.1 | (9) |
| Average | 0.4 | 17 |
| Above average | 0.1 | 28 |
| Strong | 0.2 | 75 |
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: _______
Expert Solution
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Step 1
A) Stock's expected return can be calculated as follows :
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