Question

The last four years of returns for a stock are as follows:

1	2	3	4
-3.5%	+28.5%	+12.5%	+4.5%

(a) What is the average annual return?

Answer%. (Round to two decimal places.)

(b) What is the variance of the stock's returns?

Answer. (Round to five decimal places.)

(c) What is the standard deviation of the stock's returns?

Answer%. (Round to two decimal places.)

Answer 1

a) Average return = Sum of returns / Period

= (-3.5%+28.5%+12.5%+4.5%)/4

= 10.50%

Answer = 10.50%

b ) Variance = [Sum of Deviation Squared / (Number of Periods -1)]

= 0.056000/3

= 0.01867

Answer =0.01867

Note:

Probable Return	Deviation ( Probable Return- Expected Return)	Deviation Squared
-0.04	-0.14000	0.01960
0.29	0.18000	0.03240
0.13	0.02000	0.00040
0.05	-0.06000	0.00360
	Deviation Squared Total	0.0560000

c) Standard Deviation = Variance ^(1/2)

= 0.01867^(1/2)*100

= 13.66%

Answer = 13.66%