Question

You are a financial manager and have observed the following returns on Kam Steel Corporation stock...

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?

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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
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