question archive What is the co-efficient of variation corresponding to the following probability distribu- tion of returns for an investment in Stock Z: Probability Return 0
What is the co-efficient of variation corresponding to the following probability distribu- tion of returns for an investment in Stock Z: Probability Return 0
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What is the co-efficient of variation corresponding to the following probability distribu- tion of returns for an investment in Stock Z: Probability Return 0.1 -20 0.4 30 0.5 25 (a) 0.9 (b) 1.2 (c) 8 (d) 5 (e) 0.6383
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Expected return=Respective return*Respective probability
=(0.1*-20)+(0.4*30)+(0.5*25)
=22.5
| probability | Return | probability*(Return-Expected Return)^2 |
| 0.1 | -20 | 0.1*(-20-22.5)^2=180.625 |
| 0.4 | 30 | 0.4*(30-22.5)^2=22.5 |
| 0.5 | 25 | 0.5*(25-22.5)^2=3.125 |
| Total=206.25 |
Standard deviation=[Total probability*(Return-Expected Return)^2/Total probability]^(1/2)
=(206.25)^(1/2)
=14.36(Approx)
Coefficient of variation=Standard deviation/Expected return
=14.36/22.5
=0.6383(Approx)
