Question

1. Lesly Cardona's investment in WellsFargo shares returned 3%, 4%, and 5% in years 1, 2, and 3 respectively. Based on this information, calculate the following:
   1. The standard deviation of wellsfargo stock
   2. Arithmatic mean return
   3. Geometric mean return

Answer 1

Arithmetic Mean Return = [0.03 + 0.04 + 0.05] / 3
Arithmetic Mean Return = 0.12 / 3
Arithmetic Mean Return = 0.04 or 4.00%

Variance = [(0.03 - 0.04)^2 + (0.04 - 0.04)^2 + (0.05 - 0.04)^2] / 2
Variance = 0.0002 / 2
Variance = 0.0001

Standard Deviation = (0.0001)^(1/2)
Standard Deviation = 0.0141 or 1.41%

Geometric Mean Return = [(1+0.03) * (1+0.04) * (1+0.05)]^(1/3) - 1
Geometric Mean Return = 1.12476^(1/3) - 1
Geometric Mean Return = 1.0400 - 1
Geometric Mean Return = 0.04 or 4.00%