Question

If a stock had the following returns over the last 5 years: 40%, (10%), 35%, (5%) and 15%.

A)what would the expected return be based on that data?

answers: a)15%, b)12%, c)17.40%, d)22%

B)What is the standard deviation of the expected return?

answers: a)20.46%, b)19.35%, c)17.56%, d)22.64%

Answer 1

Ans A) a) 15%

B) d) 22.64%

YEAR	INVESTMENT (X )	(X -Average Return of X)^2
Year 1	40	625
Year 2	-10	625
Year 3	35	400
Year 4	-5	400
Year 5	15	0
Total	75	2050
Expected Return =	Total Return / NO of years
	75 / 5
	15
Standard Deviation =	Square root of [((X -Average Return of X)^2) / (n -1)]
	Square root of (2050/4)
	22.64