Question

Suppose you are given the following end of year stock price data for Random Inc. stock. Assume the returns are normally distributed, calculate the standard deviation of the annual returns. (Enter percentages as decimals and round to 4 decimals). Year Price 2005 43.65 2006 44.01 2007 45.77 2008 53.04 2009 45.67 2010 59.05 2011 46.88 2012 49.24 2013 43.99 2014 42.67 2015 48.14

Answer 1

Average Return = [0.4365 + 0.4401 + 0.4577 + 0.5304 + 0.4567 + 0.5905 + 0.4688 + 0.4924 + 0.4399 + 0.4267 + 0.4814] / 11
Average Return = 5.2211
Average Return = 0.4746

Variance = [(0.4365 - 0.4746)^2 + (0.4401 - 0.4746)^2 + (0.4577 - 0.4746)^2 + (0.5304 - 0.4746)^2 + (0.4567 - 0.4746)^2 + (0.5905 - 0.4746)^2 + (0.4688 - 0.4746)^2 + (0.4924 - 0.4746)^2 + (0.4399 - 0.4746)^2 + (0.4267 - 0.4746)^2 + (0.4814 - 0.4746)^2] / 10
Variance = 0.023690 / 10
Variance = 0.002369

Standard Deviation = (0.002369)^(1/2)
Standard Deviation = 0.0487