EXPECTED RETURN A stock’s returns have the following distribution: Demand For the Company’sProducts Probability of this D-emandOccurring Rate of Return if thisDemand Occurs Weak 0.1 (3%) Below average 0.1 (14) Average 0.3 11 Above average 0.3 20 Strong 0.2 45 1.0 Assume the risk-free rate is 2%. Calculate the stock’s expected return, standard deviation , coefficient of variation, and Sharpe ratio.
EXPECTED RETURN A stock’s returns have the following distribution: Demand For the Company’sProducts Probability of this D-emandOccurring Rate of Return if thisDemand Occurs Weak 0.1 (3%) Below average 0.1 (14) Average 0.3 11 Above average 0.3 20 Strong 0.2 45 1.0 Assume the risk-free rate is 2%. Calculate the stock’s expected return, standard deviation , coefficient of variation, and Sharpe ratio.
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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EXPECTED RETURN A stock’s returns have the following distribution:
| Demand For the Company’s Products |
Probability of this D-emand Occurring |
Demand Occurs |
| Weak | 0.1 | (3%) |
| Below average | 0.1 | (14) |
| Average | 0.3 | 11 |
| Above average | 0.3 | 20 |
| Strong | 0.2 | 45 |
| 1.0 |
Assume the risk-free rate is 2%. Calculate the stock’s expected return,
standard deviation , coefficient of variation, and Sharpe ratio.
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