Expected Return: Discrete DistributionA stock's return has the following distribution:Demand for the Company's ProductsProbability of This Demand OccurringRate of Return if This Demand Occurs (%) Weak0.1-25% Below average0.2-8 Average0.47 Above average0.235 Strong0.160  1.0  Calculate the stock's expected return. Round your answer to two decimal places.___%Calculate the standard deviation. Round your answer to two decimal places.___%

Asked Sep 12, 2019

Expected Return: Discrete Distribution

A stock's return has the following distribution:

Demand for the
Company's Products
Probability of This
Demand Occurring
Rate of Return if This
Demand Occurs (%)
Weak 0.1 -25%  
Below average 0.2 -8  
Average 0.4 7  
Above average 0.2 35  
Strong 0.1 60  

Calculate the stock's expected return. Round your answer to two decimal places.

Calculate the standard deviation. Round your answer to two decimal places.


Expert Answer

Step 1

Calculation of expected return and standard deviation:

The stock’s expected return is 11.70% and the standard deviation is 23.7...


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A B C P(D) P(D)X(R) R-U -37% -0.016-0.197 0.0280.047 (R-U))^2 P(D) 1 0.1 -25% 0.025 0.0135 2 -8% 0.2 0.0078 3 7% 0.4 0.0009 4 35% 0.2 0.07 23% 0.0109 5 0.06 0.483 0.1 60% 0.0233 6 0.0563 7 Total 0.1170 0.105 8 9 Standard deviation 10 Expected return (U) 23.73% 11.70% LC


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