Question

In: Finance

ABC Inc. has provided returns of 6%, 12%, -16%, 4%, 8%, 3%, -5%, 8%, -11%, and...

ABC Inc. has provided returns of 6%, 12%, -16%, 4%, 8%, 3%, -5%, 8%, -11%, and 14% over the past ten years. Compute the arithmetic and geometric means of the returns. What was the standard deviation of the returns?

Solutions

Expert Solution

The arithmetic mean is the simple mean calculated as under:

(6+12-16+4+8+3-5+8-11+14)/10 = 2.3%

Geometric mean is the annual growth rate calculated as under:

[(1.06)*(1.12)*(0.84)*(1.04)*(1.08)*(1.03)*(0.95)*(1.08)*(0.89)*(1.14)]^(1/10)-1

=1.0184834-1

=0.0184834 or 1.84%

Variance can be calculated as under:

Standard deviation is the square root of the variance.

where Rn is individual returns, Mean is arithmetic mean of the returns, total observations is 10.

It can also be calculated using STDEV.P function of excel.

Standard deviation is 9.37.


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