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12 October, 05:20

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.

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  1. 12 October, 06:19
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    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
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Home » Business » 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.
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