Macintosh Lumber believes the following probability distribution exists for its stock. What is the coefficient of variation on the company's stock?
$\begin{array}{lcc}
\text { State of } & \begin{array}{c}
\text { Probability } \
\text { of State }
\end{array} & \begin{array}{c}
\text { Stock's } \
\text { Expected }
\end{array} \

\text { the Economy } &\text { Occurring } &\text { Return }\
\text { Boom } & 0.45 & 25 \% \
\text { Normal } & 0.50 & 15 \% \
\text { Repeseion }& 0.05 & 5 \%
\end{array}$

Question

Macintosh Lumber believes the following probability distribution exists for its stock. What is the coefficient of variation on the company's stock?
 $\begin{array}{lcc}
\text { State of } & \begin{array}{c}
\text { Probability } \
\text { of State }
\end{array} & \begin{array}{c}
\text { Stock's } \
\text { Expected }
\end{array} \

\text { the Economy } &\text { Occurring } &\text { Return }\
\text { Boom } & 0.45 & 25 \% \
\text { Normal }  & 0.50 & 15 \% \
\text { Repeseion }& 0.05 & 5 \%
\end{array}$

Quizplus · Accepted Answer

This is a relatively technical problem. It should be used only if calculations are emphasized in class, or on a take-home exam where students have time to look up formulas.
 $\begin{array}{l}
\begin{array}{lc}
\text { Probability of}& \text { Return}\
\text { This state }&\text { This state }\
0.45 & 25.00 \% \
0.50 & 15.00 \% \
0.05 & 5.00 \%\
\text { Expected  return =}&19.00\%
\end{array}
\begin{array}{ccc}
\text { Deviation}& \text { Squared}& \text { State Prob } \
\text { from Mean }& \text {Deviation }  & \text { x Sq. Dev. }\
6.00 \% & 0.36 \% & 0.1620 \% \
-4.00 \% & 0.16 \% & 0.0800 \% \
-14.00 \% & 1.96 \% & 0.0980 \%\
&0.34 \% &  0.3400 \%&\text {Expected variance }\
&\sigma=5.83 \%
\end{array}
\end{array}$
Coefficient of variation $ =\sigma / $ Expected
$\text { return = }$ $ 0.3069 $

Macintosh Lumber Believes the Following Probability Distribution Exists for Its