Question

Use the following common stock price information for Diageo PLC (Ticker: DEO) to answer questions a-e. Assume that Diageo doesn't pay a dividend.

End of Year	Stock Price	Return
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017	$57.77 $40.15 $51.75 $61.30 $73.11 $101.11 $104.22 $107.47 $100.93 $108.05 $142.48	-       -30.50% 28.89% 18.45% 19.27% 38.30% 3.08% 3.12% -6.09% 7.05% 31.86%

The sum of squares equals 0.377794201.

If you are using your calculator's statistical functions to solve the problems below, be sure to input returns in their decimal format not as percentages.

a)

The average return is:

11.34%

$86.21

$94.83

10.31%

b)

The standard deviation of returns is:

1.94%

19.44%

0.041977%

20.49%

c)

The variance of returns is:

0.041977%

0.041977

0.020488

0.204883

d)

If you purchased this stock at the end of 2011 and sold it at the end of 2015, your holding period return would be:

-27.56%

38.05%

174.04%

36.15%

e)

If you purchased this stock at the end of 2010 and sold it at the end of 2016, your annualized return would be:

14.22%

-9.01%

9.91%

28.99%

Answer 1

Avg Ret = Sum of Ret / n

= [ -30.50%+28.89%+18.45%+19.27%+38.30%+3.08%+3.12%-6.09%+7.05%+31.86% ] / 10

= 113.43% /10

= 11.343%

SD = SQRT [[ sum( X- AVg X)^2 ] /n ]

Variance = [ sum( X- AVg X)^2 ] /n

Variance = 0.0378

SD = 0.1944

Holding period Ret = [ [ sale Price / Purchase price ] - 1

= [ [ $100.93 / 73.11 ] - 1

= 1.3805 - 1

= 0.3805

i.e 38.05%

Annualized ret:

= [ sale Price / Purchase price ] ^1/n - 1

= [ 108.05 / 61.30 ] ^1/6 - 1

=  = [ 1.7626 ] ^1/6 - 1

=  = [ 1.0991 ] - 1

= 0.0991 i.e 9.91%