Question

Consider the following 2 stocks:

	Closing Prices
	Stock A	Stock B
Year 1	33.75	112.09
Year 2	31.69	115.74
Year 3	29.17	115.89
Year 4	25.64	120.75
Year 5	27.97	125.12
Year 6	30.36	127.46
Year 7	32.74	110.49
Year 8	35.09	111.26
Year 9	31.89	106.99
Year 10	33.56	105.17
Year 11	30.12	108.25

1. Calculate standard deviation of returns for stock B

Answer 1

Answer : Standard deviation of return of Stock B = 6.99

Calculation of standard deviation of returns of stock B

Returns	Deviation from mean (Return - 114.47)	Square of deviation from mean
112.09	-2.38	5.6644
115.74	1.27	1.6129
115.89	1.42	2.0164
120.75	6.28	39.4384
125.12	10.65	113.4225
127.46	12.99	168.7401
110.49	-3.98	15.8404
111.26	-3.21	10.3041
106.99	-7.48	55.9504
105.17	-9.3	86.49
108.25	-6.22	38.6884

Calculation of mean = Total of return of stock B / No. Of returns

= 1259.21 / 11

= 114.47

Standard deviation = ( Sum of sqaure of deviation from mean / No. If returns ) ^ 1/2

= (538.168 / 11 ) ^ 1/2

= 48.92 ^1/2

= 6.99