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Homework answers / question archive / Roenfeld Corp believes the following probability distribution exists for its stock

Roenfeld Corp believes the following probability distribution exists for its stock

Finance

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

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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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