You’ve observed the following returns on Crash-n-Burn Computer’s stock over the

Question

You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 13 percent, –13 percent, 20 percent, 25 percent, and 10 percent.

What was the arithmetic average return on Crash-n-Burn’s stock over this five-year period? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)

What was the variance of Crash-n-Burn’s returns over this period? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)

What was the standard deviation of Crash-n-Burn’s returns over this period? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 13 percent, –13 percent, 20 percent, 25 percent, and 10 percent.

Explanation / Answer

a) Average return = 13% + (13%) + 20% + 25% + 10%      = 11%

5

b) 1. Variance:

return in stock percentage (X)    (X - Average) (X-Average)2

13% 13% - 11% = 2% 4%

(13%) (13%) - 11% = -24% 576%

20% 20% - 11% = 9% 81%

25% 25% - 11% = 14% 196%

10% 10% - 11% = (1%) 1%

858%

   Variance = 858% / 5

   = 171.6%

   2. Standard Deviation

   Standard Deviation = (variance)1/2

   = (171.6%)1/2

= 13.09%

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