Your investment advisor believes that recent stock returns should be given more
ID: 2795239 • Letter: Y
Question
Your investment advisor believes that recent stock returns should be given more consideration when calculating future returns and risk than older returns. The historical returns for Lately Lighthouse, Inc. are given in the table below, along with the weights that your advisor believes are appropriate. Use the corresponding weights in all calculations. Lately Stock 12.088 13.42 8.10 10 . 90% 7, 55% Weight Year 2012 2013 2014 2015 2016 5 15 20% 25% 35% a. What is the expected return for Lately Lighthouse, Inc.? (Enter your answer as a percent rounded to two decimal places.) Expected return b. What is the standard deviation of returns for Lately Lighthouse, InC.? (Enter your answer as a percent rounded to two decimal places.) Standard deviation of 1 0 wordsExplanation / Answer
Expected Return = 0.05 * 12.08% + 0.15 * 13.42% + 0.20 * 8.1% + 0.25 * 10.90% + 0.35 * 7.55%
Expected Return = 0.60% + 2.01% + 1.62% + 2.73% + 2.64%
Expected Return = 9.60%
Standard Deviation = (0.05 * (12.08% - 9.60%)2 + 0.15 * (13.42% - 9.60%)2 + 0.20 * (8.1% - 9.60%)2 + 0.25 * (10.90% - 9.60%)2 + 0.35 * (7.55% - 9.60%)2)0.5
Standard Deviation = 2.20%
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