United Financial is considering the purchase of an investment. The annual rate of return and related probabilities given below summarize the firm\'s analysis. Rate of Return  Probability Pessimistic  8%  15% Expected  13%  50% Optimistic  18%  35% Required: a) Compute the expected rate of return b) Compute the standare deviation of the expected return c) Compute the coefficient of variation of the return Solution Solution. a. Compute the expected rate of return. Formula = Probability of Outcome x Rate of Outcome = 8% x 15% + 13% x  50% + 18% x 35% = 120% + 650% + 630% = 1400 / 100 = 14% b) Computetion of the standare deviation of the expected return. Standard Deviation = ((8 - 14) 2 + (13 - 14) 2 + (18 - 14) 2 / 3 - 1) 1/2 = 5 c) Compute the coefficient of variation of the return Coefficient of Variation = Standard Deviation / Average Return = 5 / 13 = .38 .