The stock’s expected return, standard deviation, and coefficient of variation. Portfolio: The portfolio refers to a group of financial assets like bonds, stocks, and equivalents of cash. The portfolio is held by investors and financial users. A portfolio is constructed in accordance with the risk tolerance and the objectives of the company. Expected Return on Stock: The expected return on stock refers to the weighted average of expected returns on those assets which are held in the portfolio. Standard Deviation: The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation. Coefficient variation: The coefficient of variation is a tool to determine the risk. It determines the risk per unit of return. It is used for measurement when the expected returns are same for two data.

Question

Expected return. A stocks returns have the following distribution; Denand for the company’s product Probability of this demand occurring Rate of return if this demand occurs Weak 0.1 (50%) Below average 0.2 (5%) Average 0.4 16 Above average 0.2 25 Strong 0.1 60 1.0 Calculate the stock’s expected return, standard deviation . and the coefficient of variation.

Answer 1

Question

Chapter 8, Problem 1P

Summary Introduction

To determine: The stock’s expected return, standard deviation, and coefficient of variation.

Portfolio:

The portfolio refers to a group of financial assets like bonds, stocks, and equivalents of cash. The portfolio is held by investors and financial users. A portfolio is constructed in accordance with the risk tolerance and the objectives of the company.

Expected Return on Stock:

The expected return on stock refers to the weighted average of expected returns on those assets which are held in the portfolio.

Standard Deviation:

The standard deviation refers to the stand-alone risk associated with the securities. It measures how much a data is dispersed with its standard value. The Greek letter sigma represents the standard deviation.

Coefficient variation:

The coefficient of variation is a tool to determine the risk. It determines the risk per unit of return. It is used for measurement when the expected returns are same for two data.

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