Question

A stock produced returns of 14 percent, 17percent, and -1 percent over three of the past four years, respectively. The arithmetic average for the past four years is 6 percent. What is the standard deviation of the stock's returns for the four-year period

Answer 1

Answer:

11.23%

Explanation:

Arithmetic return = Total return/Total time period  

6% = (14% + 17% - 1% + x%) / 4

(6%*4) =30% + x

24% = 30% + x

x = (24% - 30%)

x = -6%

For the standard deviation, we need to use stdev.s function in Ms Excel

Standard deviation = stdev.s (14%,17%,-1%,-6%)

Standard deviation = 0.112249722

Standard deviation = 11.23%

So, the standard deviation of the stock's returns for the four-year period is 11.23%.