Homework Answers
Answer to Question 1:
Average Return = [0.10 + (-0.05) + 0.04] / 3
Average Return = 0.09 / 3
Average Return = 0.03 or 3.00%
Variance = [(0.10 - 0.03)^2 + (-0.05 - 0.03)^2 + (0.04 -
0.03)^2] / 2
Variance = 0.0114 / 2
Variance = 0.00285
Standard Deviation = (0.00285)^(1/2)
Standard Deviation = 0.0534 or 5.34%
Answer to Question 2:
Sharpe Ratio = (Average Return - Risk-free Rate) / Standard
Deviation
Sharpe Ratio = (0.08 - 0.0160) / 0.45
Sharpe Ratio = 0.0640 / 0.45
Sharpe Ratio = 0.14
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A stock you are looking at has generated the following annual returns: 10.0%, -5.0% and 4.0%. What was the standard deviation of its returns? Answer in percent, rounded to two decimal places (e.g., 4.32% = 4.32). Numeric Answer: A stock has generated an annual average return of 8.0% with a standard deviation of 45.0% during the last 10 years. If the average risk-free rate was 1.6%, what was this stock's Sharpe Ratio? Round...
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