Question

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The last four years of returns for a stock are as shown​ here:

year 1, -4.4%

year 2 28.4%

year 3 12.4%

year 4 3.8%

a. What is the average annual​ return?

b. What is the variance of the​ stock's returns?

c. What is the standard deviation of the​ stock's returns?

Note​:

Notice that the average return and standard deviation must be entered in percentage format. The variance must be entered in decimal format.

round to five decimal places

Answer 1

I am thinking average return and standard deviation should be entered with 2 decimals and variance should have 5 decimals. If average return and standard deviation should also be entered with 2 decimals, put it in comments and i will re do the question.

a)

Average return = (-0.044 + 0.284 + 0.124 + 0.038) / 4

Average return = 0.402 / 4

Average return = 0.1005 or 10.05%

2)

Variance = [(-0.044 - 0.1005)² + (0.284 - 0.1005)² + (0.124 - 0.1005)² + (0.038 - 0.1005)²] / 4 - 1

Variance = [0.02088 + 0.03367 + 0.00055 + 0.01918] / 3

Variance = 0.02476

3)

Standard deviation = (0.02476)^1/2

Standard deviation = 0.1574 or 15.74%