You\'ve observed the following returns on Crash-n-Burn Computer\'s stock over th

Question

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 14 percent, 7 percent, 17 percent, 15 percent, and 10 percent. a. What was the arithmetic average return on Crash-n-Burn's stock over this five-year period? (Round your answer to 1 decimal place. (e.g., 32.1) Average return b-1 What was the variance of Crash-n-Burn's returns over this period? (Round your answer to 5 decimal places. (e.g., 32.16161) Variance b-2 What was the standard deviation of Crash-n-Burn's returns over this period? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) places.(e.g., 32.16)) Standard deviation

Explanation / Answer

A./

AVERAGE RETURN

= TOTAL RETURN / NUMBER OF YEARS

= (14 +7 +17 +15 +10) / 5

= 63 / 5

= 12.60%

B 1./

VARIANCE = D2 / N

= 65.20 / 5

= 13.04%

B.2/

STANDARD DEVIATION

= SQUARE ROOT OF VARIANCE

= SQUARE ROOT OF 13.04

= 3.61%

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PORTFOLIO EXPECTED RETURN

= (30% * 0.09) + (25% * 0.18) + (45% * 0.14)

= 2.7% + 3.75% + 6.3%

= 12.75%

YEAR RETURN DEVIATION (D) D2 1 14 1.4 1.96 2 7 -5.6 31.36 3 17 4.4 19.36 4 15 2.4 5.76 5 10 -2.6 6.76 AVERAGE RETURN 12.6 TOTAL 65.20

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