Question

- Question 8 1 point Number Help A stock had returns of 12 percent, 30 percent, and -9 percent over the past 3 years. What is the mean of the stock's returns over the past 3 years minus the sample standard deviation of the stock's returns from the past 3 years? Answer as a rate in decimal format so that 12.34% would be entered as . 1234 and 0.98% would be entered as .0098. Number - Question 9 1 point Number Help What is the expected standard deviation of stock A's returns based on the information presented in the table? Answer as a rate in decimal format so that 12.34% would be entered as 1234 and 0.98% would be entered as .0098. Note that figures in the table are presented in decimal format, not as percentages. Outcome L Probability of outcome Stock A return in outcome Good 10.3 0.8 Medium 0.5 0.1 Bad -0.4 Number

Answer 1

8 Computation of stock return's mean and standard deviation Year Return Average return Deviation Deviation2 1 1 30 11 19 361 12 -9 -20 400 762 Mean (Average return) = Sum of (Returns)/N = 33%/3 = 11% Deviation = Return - Average return Standard deviation = Square root of (Sum of Deviation 2/N) = Square root of (762%/3) = 15.93737745% = 15.94% Ans : Mean = 0.11 Standard deviation = 0.1594

0.59 9 Computation of expected standard deviation of stock A Outcome Probability Return Probability * Return Average return Deviation Deviation^2 Probability * Deviation 2 Good 0.3 0.8 0.24 0.21 0.3481 0.10443 Medium 0.5 0.1 0.05 0.21 -0.11 0.0121 0.00605 Bad 0.2 -0.4 -0.08 0.21 -0.61 0.3721 0.07442 1 0.21 0.1849 Average return = Sum of (Probability * Return) = 0.21 Deviation = Return - Average return Standard deviation = Sqaure root of [Sum of (Deviation 2* Probability)] = Square root of [ 0.1849] = 0.43 Ans: Standard deviation = 0.43