You find a certain stock that had returns of 12.6 percent, -21.3 percent, 27.3 p
ID: 2651658 • Letter: Y
Question
You find a certain stock that had returns of 12.6 percent, -21.3 percent, 27.3 percent, and 18.3 percent for four of the last five years. Assume the average return of the stock over this period was 10.60 percent. Requirement 1: What was the stock?s return for the missing year? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).) Stock?s return % Requirement 2: What is the standard deviation of the stock?s returns? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).) Standard deviation %Explanation / Answer
Answer:
1) Calculation of stock return for the missing year:
Average return = Sum of return for the years / number of years
10.60 = (12.6 -21.3 +27.3 +18.3 + year 5 return ) /5
10.6 *5= year 5 return + 36.9
Year 5 Return = 53 -36.9
=16.10%
2) Calculation of standard deviation :
Year
Return
Average Return
Deviation
Deviation Square
A
B
C
D = C-B
D*D
1
12.60%
10.60%
2.00%
0.0400%
2
-21.30%
10.60%
-31.90%
10.1761%
3
27.30%
10.60%
16.70%
2.7889%
4
18.30%
10.60%
7.70%
0.5929%
5
16.10%
10.60%
5.50%
0.3025%
Sum of D^2
13.9004%
Sum of D^2 /(5-1)
3.4751%
Standard Deviation = (Sum of D^2/ 4)^(1/2)
18.64%
Year
Return
Average Return
Deviation
Deviation Square
A
B
C
D = C-B
D*D
1
12.60%
10.60%
2.00%
0.0400%
2
-21.30%
10.60%
-31.90%
10.1761%
3
27.30%
10.60%
16.70%
2.7889%
4
18.30%
10.60%
7.70%
0.5929%
5
16.10%
10.60%
5.50%
0.3025%
Sum of D^2
13.9004%
Sum of D^2 /(5-1)
3.4751%
Standard Deviation = (Sum of D^2/ 4)^(1/2)
18.64%
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