Expected rate of return, standard deviation, and coefficient of variation
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State Pi kj
1 0.3 20%
2 0.4 5
3 0.3 12
Calculate the expected return for security j.
Calculate the standard deviation for security j.
Calculate the coefficient of variation for security j.
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This solution involves calculations and explanations for expected rate of return, standard deviation, and coefficient of variation.
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Here are your answers.
Calculate the expected return for security j.
This can be calculated by multiplying the return under each state (kj) by the probability of occurrence of that state (Pi), and then summing those values. In this case, the expected return is:
0.3*20 + 0.4*5 + ...
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