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In: Finance

h A stock had returns of 19.06 percent, 22.79 percent, −16.25 percent, 9.47 percent, and 28.54...

h A stock had returns of 19.06 percent, 22.79 percent, −16.25 percent, 9.47 percent, and 28.54 percent for the past five years. What is the standard deviation of the returns? 22.02% 3.10% 17.62% 31.04% 14.10%

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Expert Solution

Solution:
Answer is 3rd option 17.62%
The sample standard deviation of annual return (%) = 17.62%
Working Notes:
a b = a - 12.722% b^2
Year Annual total return (%) R (R-r) (R-r)^2
1 19.06 6.338 40.170244
2 22.79 10.068 101.364624
3 -16.25 -28.972 839.376784
4 9.47 -3.252 10.575504
5 28.54 15.818 250.209124
Sum of annual return 63.61 Sum of (R-r)^2 1241.69628
Mean (r) = sum of returns / no of returns
Mean (r) = 63.61%/5
Mean (r) =12.722%
Where n = no of return considered = 5
standard deviation (s.d.) = Square root of (Sum of (R-r)^2 /(n-1))
standard deviation (s.d.) = Square root of (1241.69628/(5-1))
standard deviation (s.d.) = Square root of (1241.69628/4)
standard deviation (s.d.) = Square root of (310.42407)
standard deviation (s.d.) = (310.42407)^(1/2)
standard deviation (s.d.) = 17.61885552
standard deviation (s.d.) = 17.62%
Please feel free to ask if anything about above solution in comment section of the question.

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