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Roenfeld Corp believes the following probability distribution exists for its stock
Roenfeld Corp believes the following probability distribution exists for its stock. What is the coefficient of variation on the company's stock? Do not round your intermediate calculations. Probability Stock's State of the of State Expected Economy Occurring Return Boom 0.19 25% Normal 0.50 15% Recession 0.31 5% o a. 0.6060 b. 0.5050 c. 0.6565 d. 0.4292 e. 0.4545
Expert Solution
Expected return = 0.19 * 0.25 + 0.5*0.15 + 0.31*0.05
Expected return = 0.0475 + 0.075 + 0.0155
Expected return = 0.138 or 13.80%
Standard deviation = [0.19(0.25 - 0.138)^2 + 0.5(0.15 - 0.138)^2 + 0.31(0.05 - 0.138)^2]^1/2
Standard deviation = [0.00238 + 0.00007 + 0.0024]^1/2
Standard deviation = 0.06965 or 6.965%
Coefficient of variation = standard deviation / expected return
Coefficient of variation = 0.06965 / 0.138
Coefficient of variation = 0.5050
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