Question

1) Stocks A, B, C and D have standard deviations, respectively, of 20%, 5%, 10% and 15%. Which one is the riskiest?

a) Stock A

b) Stock B

c) Stock C

d) Stock D

2) Find the standard deviation for a security that has 3 one-year returns of -5%, 15% and 20%.

a) 6.25%

b) 13.23%

c) 11.41%

d) 5%

Answer 1

Riskiest stock is the one with highest standard deviation

i.e. Stock A

Hence, the answer is a)

2)

	Returns	Average Return	Difference	Difference Square
	-5%	10%	-15%	225
	15%	10%	5%	25
	20%	10%	10%	100
Total	30%			350
	Mean = 30%/3 = 10%
	Standard Deviation = (350/2)^1/2
	=13.23%
	i.e. B