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You find a certain stock that had returns of 18 percent, -25 percent, 21 percent, and 7 percent...

Question:

You find a certain stock that had returns of 18 percent, -25 percent, 21 percent, and 7 percent for four of the last five years. The average return of the stock over this period was 9.6 percent.

1. What was the stock's return for the missing year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)

Stock's return _____%

2. What is the standard deviation of the stock's returns? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Standard deviation _____%

Average return and standard deviation of stock

Average return of a security is the total return divided by the number of years. Standard deviation of security is a measure of variability of returns from the average returns.

Answer and Explanation:

  1. Stock's return during missing year=27.0%
  2. Standard Deviation =18.48%

The return and standard deviation is calculated below:

Average return=Total...

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Geometric vs. Arithmetic Average Returns

from Finance 101: Principles of Finance

Chapter 11 / Lesson 6
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