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: 15 percent, –6 percent, 18 percent, 14 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: 15 percent, –6 percent, 18 percent, 14 percent, and 10 percent.

Explanation / Answer

Answer: a.To find the average return, we sum all the returns and divide by the number of returns,

so:Average return = (0.15 – 0.06 + 0.18 + 0.14 + 0.10)/5 = 0.102, or 10.2%

b.Using the equation to calculate variance, we find:

Variance = 1/4[(0.15 – 0.102)2+ (– 0.06 – 0.102)2+ ( 0.18 – 0.102)2+ ( 0.14 – 0.102)2+ ( 0.10 –0.102)2]

Variance = 1/4[0.002304+0.026244+0.006084+0.001444+0.000004]

=1/4[0.03608]

=0.00902

So, the standard deviation is:Standard deviation = (0.00902)1/2= 0.0949736

or 9.497%

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