Question

You have calculated the following returns for an individual stock:

Periods               Return

Month 1                 12%

Month 2                   8%

Month 3                 9%

Month 4                 10%

What is the stock's expected return and standard deviation?

Expected return: (round your answer to the fourth decimal, e.g. if the answer is 1.11%, you should input: 0.0111)

Standard Deviation:   (round your answer to the fourth decimal, e.g. if the answer is 1.11%, you should input: 0.0111)

Answer 1

We can calculate the expected return using the following formula:-

Expected return (Er)= $\sum return/no of periods$

= (12+8+9+10)/4

= 9.75%

= 0.0975

Standard deviation can be calculated by taking route of the following

= Sum of {(X-Er)²/ no of period}

Month	return (X)	X-(Er)	X(Er)2
1	12	2.25	5.0625
2	8	-1.75	3.0625
3	9	-0.75	0.5625
4	10	0.25 Total	0.0625 8.75

So standard deviation = 8..75/4 = 2.1875

Route of 2.1875 =1.479%

ie, 0.01479

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