Question

You are a financial manager and have observed the following returns on Kam Steel Corporation stock over the past ten years: 7%, −12%, 11%, -38%, 14%, 22%, -26%, 18%, 20%, and 23%. Based on the given information, please answer questions a and b.

a) What was the arithmetic average return on Kam Steel Corporation stock over this 10-year period?

b) What was the variance of Kam Steel Corporation stock's returns over this period? The standard deviation?

Answer 1

	a)arithmetic average return = 3.90% b) variance = 0.042149   The standard deviation = 20.53%	Deviation
Sl.No	Returns[%]	return-expected return	Deviation^2
1	7	3.1	9.61
2	-12	-15.9	252.81
3	11	7.1	50.41
4	-38	-41.9	1755.61
5	14	10.1	102.01
6	22	18.1	327.61
7	-26	-29.9	894.01
8	18	14.1	198.81
9	20	16.1	259.21
10	23	19.1	364.81
	39		4214.90
Arthimetic average return	3.9	[Total of returns/ Total observation]
Standard Deviation	20.53%	√[sum of deviation^2]/n	√4214.90/10
Variance	421.49%	Standard deviation^2
		or
		0.042149