Question

Kelly decided to accept the risk and purchased a high growth stock. Her returns for the past five years are 32 percent, 24 percent, -48 percent, 12 percent, and -9 percent, respectively. What is the standard deviation of these returns

Answer 1

Answer:

32.03%

Explanation:

The computation of the standard deviation is as follows;

As we know that

Average return = Total return ÷Total time period

= (32 + 24 - 48 + 12 - 9) ÷ 5

= 2.2%

Now

Return         (Return - Average Return)^2

32                  (32 - 2.2)^2 = 888.04

24                 (24 - 2.2)^2 = 475.24

-48                (- 48 - 2.2)^2  = 2520.04

12                  (12 - 2.2)^2 = 96.04

-9                   (-9 - 2.2)^2 = 125.44

Total =                 4104.8%

Now

Standard deviation is

= [Total (Return - Average Return)^2 ÷ (Time period- 1)]^(1 ÷ 2)

= [4104.8 ÷ (5 - 1)]^(1 ÷ 2)

= [4104.8 ÷ 4]^(1 ÷ 2)

= 32.03%