Calculate the expected return for each company

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Question - Consider that there are three equally likely states of economy: recession, normal and boom. The returns on the Big Company (BC) are expected to follow the economy closely, while the returns on the small company (SC) are not. The return predictions are as follows:

State of company

Big company

Small company

Recession

0%

10%

Normal

15%

-5%

Boom

30%

-10%

Required -

a) Calculate the expected return for each company.

b) Calculate the variance and standard deviation for each of the company.

c) Based on your computation above, evaluate and comment on the risk and return.

d) Calculate the coefficient of variation for each of the company and comment on your answer.

Reference no: EM132610823

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