Question

Suppose Standard Inc. had the following stock prices from t0 to t5. Compute (i) the monthly returns over the given sample period, (ii) the expected return, and (iii) standard deviation.

Price	Dividend
t0	$142
t1	$192	$2.5
t2	$215	$2.2
t3	$224	$2.0
t4	$208	$2.1
t5	$215	$2.2

Answer 1

	Price	Dividend	(r)	( u-r)	( u-r)^2
	142
1	192	2.5	36.97%	-26.29%	0.0690936
2	215	2.2	13.13%	-2.44%	0.0005948
3	224	2	5.12%	5.57%	0.0031024
4	208	2.1	-6.21%	16.89%	0.0285324
5	215	2.2	4.42%
Total			53.43%		0.1013231
Mean (u): expected return		0.5343/5=	10.69%
Standard deviation			(0.1013231/(5-1))^1/2	15.92%

Return in 1 = (192 + 2.5 - 142)/142 = 36.97%

expected return = 10.69%

Standard deviation = 15.92%