Assume the risk-free rate is 3%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places.

Answer and Explanation:

a) Expected Return = P1 * X1 + P2 * X2 + Pn * Xn

Expected Return = (0.1 * -40%) + (0.1 * -14%) + (0.3 * 14%) + (0.4 * 39%)+ (0.1 * 59%)

Expected Return = -4% - 1.4% + 4.2% + 15.6% + 5.90% = 20.30% --> Answer

b) Standard deviation is square root of probability weighted squared deviations of individual values from expected values.

Std deviation = 27.98%

c) Coefficient of Variayion = Standard deviation/Expected return = 27.98%/20.30% = 1.38

d) Sharpe' Ratio = (Expected return - Rsik free rate)/Std deviation = (20.3% - 3%)/27.98% = 0.62

a

explanation:

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