Answer:
Standard Deviation = 0.032 or 3.2%
Therefore, Option C) 3.22 percent is the correct answer
Explanation:
Given the data in the question;
lets make a table;
year market Treasury bills Risk deviation square of
returns returns premium from mean deviation
A B (A - B) Avg - (A - B) (Avg-(A-B))²
1 7.2% 3.4% 3.8% -0.0195 0.0004
2 5.8% 3.3% 2.5% -0.0325 0.0011
3 11.2% 4.1% 7.1% 0.0135 0.0002
4 13.6% 4.0% 9.6% 0.0385 0.0015
sum(∑) 23% 0.0032
Average Avg = ∑(A-B) /n = 23/4 = 5.75%
so Variance = ∑(Avg-(A-B))² / n-1 = 0.0032 / (4-1) = 0.0032 / 3 = 0.0010
Standard Deviation = √variance = √0.0010 = 0.0316 ≈ 0.032 or 3.2%
Therefore, Option C) 3.22 percent is the correct answer
