In: Finance
Returns for the Alcoff Company over the last 3 years are shown below. What's the standard deviation of the firm's returns? (Hint: This is a sample, not a complete population, so the sample standard deviation formula should be used.)
Year | Return |
2010 | 21.00% |
2009 | −12.50% |
2008 | 26.00% |
Select the correct answer.
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standard deviation =
X = Yearly return
X' = average return
N = number of periods
Average return = (26% - 12.50% + 21%) / 3 = 11.50%
Standard deviation = [(26% - 11.50%)^2 + (-12.50% - 11.50%)^2 + (21% - 11.50%)^2 / (3 - 1) ]^(1/2)
= 20.93%
Option b is correct