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Homework answers / question archive / the rate of return on cherry jalopies inc

the rate of return on cherry jalopies inc

Finance

the rate of return on cherry jalopies inc. stock over the last five years were 25 percent, 11 percent, -7 percent, 6, and 11 percent. Over the same period, the returns on Straw Construction Company's stock were 16 percent, 22 percent, -4 percent, 4 percent, and 14 percent.

 

Calculate the variances and standard deviations for each

 

Variance:

Standard deviation:

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Computation of Variancea and Standard Deviation for Cherry Jalopies, Inc.:

Average Return = [0.25 + 0.11 + (-0.07) + 0.06 + 0.11] / 5
Average Return = 0.46 / 5
Average Return = 0.092 or 9.20%

 

Variance = [(0.25 - 0.092)^2 + (0.11 - 0.092)^2 + (-0.07 - 0.092)^2 + (0.06 - 0.092)^2 + (0.11 - 0.092)^2] / 4
Variance = 0.05288 / 4
Variance = 0.01322

 

Standard Deviation = (0.01322)^(1/2)
Standard Deviation = 11.50%

 

Computation of Variancea and Standard Deviation for Straw Construction Company:

Average Return = [0.16 + 0.22 + (-0.04) + 0.04 + 0.14] / 5
Average Return = 0.52 / 5
Average Return = 0.104 or 10.40%

 

Variance = [(0.16 - 0.104)^2 + (0.22 - 0.104)^2 + (-0.04 - 0.104)^2 + (0.04 - 0.104)^2 + (0.14 - 0.104)^2] / 4
Variance = 0.04272 / 4
Variance = 0.01068

 

Standard Deviation = (0.01068)^(1/2)
Standard Deviation = 0.1033 or 10.33%

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