Question

In: Finance

Given the following historical returns, calculate the average return and the standard deviation Year Return 1...

Given the following historical returns, calculate the average return and the standard deviation

Year

Return

1

12%

2

7%

3

10%

4

9%

Solutions

Expert Solution

Average Return(mean) =Sum of returns/Number of returns

Year 1=12% year 2=7% Year 3=10% year 4=9%

Average Return (mean)=12%+7%+10%+9%/4 =9.5%

Standard deviation is the square root of variance

Variance=Sigma(return -mean)^2/N

=Sigma(12-9.5)^2+(7-9.5)^2+(10-9.5)^2+(9-9.5)^2/4

we get 13/4 =3.25

Standard deviation is the squareroot of variance so standard deviation =Squareroot of 3.25=1.80

I have computed this on excel too and I'm attaching a screenshot.VAR.P is the function used for variance and SQRT for squareroot .Average function is used for obtaining Average returns.

jeff jeffy answered 2 years ago
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