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Returns Year X Y 1 13% 18% 2 27 28 3 - 20 - 25 4 8 10 5 10 19 Using the returns shown above, calculate the average returns, v

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Answer #1

Stock X:

Average Return = [0.13 + 0.27 + (-0.20) + 0.08 + 0.10] / 5
Average Return = 0.38 / 5
Average Return = 0.0760 or 7.60%

Variance = [(0.13 - 0.076)^2 + (0.27 - 0.076)^2 + (-0.20 - 0.076)^2 + (0.08 - 0.076)^2 + (0.10 - 0.076)^2] / 4
Variance = 0.11732 / 4
Variance = 0.02933

Standard Deviation = (0.02933)^(1/2)
Standard Deviation = 0.1713 or 17.13%

Stock Y:

Average Return = [0.18 + 0.28 + (-0.25) + 0.10 + 0.19] / 5
Average Return = 0.50 / 5
Average Return = 0.10 or 10.00%

Variance = [(0.18 - 0.10)^2 + (0.28 - 0.10)^2 + (-0.25 - 0.10)^2 + (0.10 - 0.10)^2 + (0.19 - 0.10)^2] / 4
Variance = 0.1694 / 4
Variance = 0.04235

Standard Deviation = (0.04235)^(1/2)
Standard Deviation = 0.2058 or 20.58%

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