Question

Scenario Modeler’s prospective stock has a 15% chance of producing a 65% return, a 25% chance of producing a 22% return, a 40% chance of producing a 9% return, and a 20% chance of producing a –28% return. What is the firm’s coefficient of variation of return? Enter your answer rounded to two decimal places. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Answer 1

Stock
Scenario	Probability	Return%	=rate of return% * probability	Actual return -expected return(A)%	(A)^2* probability
1	0.15	65	9.75	51.75	0.040170938
2	0.25	22	5.5	8.75	0.001914063
3	0.4	9	3.6	-4.25	0.0007225
4	0.2	-28	-5.6	-41.25	0.03403125
	Expected return %=	sum of weighted return =	13.25	Sum=Variance Stock=	0.07684
			Standard deviation of Stock%	=(Variance)^(1/2)	27.72
			Coefficient of variation=	Std. dev./return=	2.09