A stock's return has the following distribution:Demand for theCompany's ProductsProbability of ThisDemand OccurringRate of Return if ThisDemand Occurs (%)Weak 0.1 -20% Below average 0.2 -8 Average 0.4 17 Above average 0.2 35 Strong 0.1 65 1.0 Calculate the stock’s expected return and standard deviation. Do not round intermediate calculations. Round your answers to two decimal places.Expected return: %Standard deviation: %

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Expected return: % Standard deviation: %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 1P

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Question

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	-20	%
Below average		0.2	-8
Average		0.4	17
Above average		0.2	35
Strong		0.1	65
		1.0

Calculate the stock’s expected return and standard deviation. Do not round intermediate calculations. Round your answers to two decimal places.

Expected return: %

Standard deviation: %

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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