Consider the following realized annual returns: Year End Market Realized Return

Question

Consider the following realized annual returns:

Year End

Market Realized Return

Microsoft Realized Return

1996

21.2%

88.3%

1997

30.3%

56.4%

1998

22.3%

114.6%

1999

25.3%

68.4%

2000

-11.0%

-62.8%

2001

-11.3%

52.7%

2002

-20.8%

-22.0%

2003

33.1%

6.9%

2004

13.0%

9.2%

2005

7.3%

-0.9%

Required: Using the data provided in the table, calculate the average annual return, the variance of the annual returns, and the standard deviation of the average returns for the market from 1996 to 2005.

Year End

Market Realized Return

Microsoft Realized Return

1996

21.2%

88.3%

1997

30.3%

56.4%

1998

22.3%

114.6%

1999

25.3%

68.4%

2000

-11.0%

-62.8%

2001

-11.3%

52.7%

2002

-20.8%

-22.0%

2003

33.1%

6.9%

2004

13.0%

9.2%

2005

7.3%

-0.9%

Explanation / Answer

Please find the calculation as follows :

Year End Market Realized return Microsoft Realized return 1996 21.20% 88.30% 1997 30.30% 56.40% 1998 22.30% 114.60% 1999 25.30% 68.40% 2000 -11.00% -62.80% 2001 -11.30% 52.70% 2002 -20.80% -22.00% 2003 33.10% 6.90% 2004 13.00% 9.20% 2005 7.30% -0.90% Average Return 10.9% 31.1% Variance of the annual returns 3.7% 29.4% Standard Deviation 19.2% 54.2%

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