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The last four years of returns for a stock are as follows: Year 1 2 3 4 Return - 3
The last four years of returns for a stock are as follows:
Year 1 2 3 4 Return - 3.7% 28 2% 12 2% 3 9%
a. What is the average annual return? b. What is the variance of the stock's returns? c. What is the standard deviation of the stock's returns?
Expert Solution
| Computation of Average Return, Variance and Standard Deviation: | |||||
| Year | Returns | Deviation from Mean | Square of Deviation | ||
| (Return - Average Return) | |||||
| 1 | -3.70% | -13.85% | 0.019182 | ||
| 2 | 28.20% | 18.05% | 0.03258 | ||
| 3 | 12.20% | 2.05% | 0.00042 | ||
| 4 | 3.90% | -6.25% | 0.003906 | ||
| 40.60% | Total = | 0.05609 | |||
| Average Return = | 10.15% | Variance = | 0.01870 | (0.05609/(4-1)) | |
| (40.60%/4) | Standard Deviation = | 13.67% |
(0.01870^(1/2))
|
||
a) Average Return = 10.15%
b) Variance = 0.01870
c) Standard Deviation = 13.67%
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