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Assume that ABC stock has generated the following actual rates of return for the last four...

Assume that ABC stock has generated the following actual rates of return for the last four years:

Year 1: 15%

Year 2: 13%

Year 3: 17%

Year 4: 18%

What is the standard deviation of this investment?

7.18

2.22

3.45

5.46

Solutions

Expert Solution

Year

Returns

(Returns - Average)^2

Year-1

15.00%

0.00562500%

Year-2

13.00%

0.07562500%

Year-3

17.00%

0.01562500%

Year-4

18.00%

0.05062500%

Total

63.000000%

0.14750000%

n=4 (seven observations)

Average = X = Total / n

X = 63%/4

X = 15.75%

Standard Deviation = ((Sum of (Return pertaining to each year - Average)^2)/(n-1))^0.5                             

Standard Deviation = (0.1475%/3)^0.5                               

Standard Deviation = 0.022173558                        

Standard Deviation = 2.22%       

Hence, Correct option is > 2.22

jeff jeffy answered 2 years ago
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