You’ve observed the following returns on SkyNet Data Corporation’s stock over th

Question

You’ve observed the following returns on SkyNet Data Corporation’s stock over the past five years: 12 percent, –12 percent, 19 percent, 24 percent, and 10 percent. a. What was the arithmetic average return on the stock over this five-year period? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) b-1. What was the variance of the stock’s returns over this period? What was the standard deviation of the stock’s returns over this period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

a.Arithmetic average return=Total returns/Total time period

=(12-12+19+24+10)/5=10.6%

b.

SD=[Total (Return-mean)^2/(Time period-1)]^(1/2)

=13.81%(Approx)

Variance=SD^2

=190.8%

Return (return-mean)^2 12 (12-10.6)^2=1.96 -12 (-12-10.6)^2=510.76 19 (19-10.6)^2=70.56 24 (24-10.6)^2=179.56 10 (10-10.6)^2=0.36 Total=763.2%

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