Question

You find a certain stock that had returns of 9 percent, −16 percent, 18 percent, and 14 percent for four of the last five years. The average return of the stock over this period was 10.3 percent. a. What was the stock’s return for the missing year? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) b. What is the standard deviation of the stock’s return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

average return =Total return/Total time period

10.3=(9-16+18+14+Return for missing year)/5

(10.3*5)=25+Return for missing year

Return for missing year=51.5-25

=26.5%

Return	(Return-Average Return)^2
9	(9-10.3)^2=1.69
-16	(-16-10.3)^2=691.69
18	(18-10.3)^2=59.29
14	(14-10.3)^2=13.69
26.5	(26.5-10.3)^2=262.44
	Total=1028.8%

Standard deviation=[Total (Return-Average Return)^2/(Time period-1)]^(1/2)

=[1028.8/(5-1)]^(1/2)

=[1028.8/4]^(1/2)

=16.04%(Approx).