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.

Question

Business

Rhys Townsend

28 May, 03:47

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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Answers (1)

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Michael Lloyd · Answer 1

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