ts will be given if only final answers are shown. e stock of a firm during the l

Question

ts will be given if only final answers are shown. e stock of a firm during the last four years are provided below. dr work. No credits will be g The annual returns on the on th o Year Return ? 2014 72015 2016 2017 -0.1 0 (or-10%) 0.1 0 (or 10%) 0.1 5 (or 1 5%) 0.25 (or 25%) average return of the stock over the four-year period. average return of the stock over the four-year period. e varianee no frera deviation of the returns during this period. Use the Calculate the geometric returno metic average return in (a) for your calculations in (c).

Explanation / Answer

Arithmetic Average Return = (-10% + 10% + 15% + 25%)/4 = 10%

Geometric Average Return = [(1+ return in year 1) x (1+ return in year 2) x……….x(1+ return in year n)]1/n - 1
=> [(0.90 x 1.10 x 1.15 x 1.25)]1/4 – 1
=> 1.4231250.25 – 1
= 0.092221603 or 9.22%

Variance of Stock:
[(-10% - 10%)2 + (10% - 10%)2 + (15% - 10%)2 + (25%-10%)2]/ 4 = 0.01625 or 162.5

Standard Deviation: Standard deviation is square root of Variance.

Standard Deviation of Stock => (162.50)0.5 = 12.74755

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