Conestoga Ltd. has the following estimated probability distribution of returns. Return Probability 4% .20 12% .50 14% .30 Calculate Conestoga’s expected return, the variance and standard deviation of its expected return and the return’s coefficient of variation.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Evaluating Stand-Alone Risk: Example 9-4, (page 411)
- Conestoga Ltd. has the following estimated probability distribution of returns.
Return Probability
4% .20
12% .50
14% .30
Calculate Conestoga’s expected return, the variance and standard deviation of its expected return and the return’s coefficient of variation.
Please explain to me in detail how the variance of returns is obtained.
I don't understand the equation used to get the answer.
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