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%

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