Question

Problem 10-9 Calculating Returns and Variability

You’ve observed the following returns on Mary Ann Data Corporation’s stock over the past five years: 18 percent, –3 percent, 16 percent, 11 percent, and 10 percent.

a.	What was the arithmetic average return on Mary Ann’s stock over this five-year period? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Average return

%

b-1.	What was the variance of Mary Ann’s returns over this period? (Do not round intermediate calculations and round your answer to 5 decimal places. (e.g., 32.16161))

Variance

b-2.	What was the standard deviation of Mary Ann’s returns over this period? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Standard deviation

%

Answer 1

1)

arithmetic average return = (0.18 - 0.03 + 0.16 + 0.11 + 0.1) / 5

arithmetic average return = 0.104 or 10.40%

2)

Variance = [(0.18 - 0.104)² + (-0.03 - 0.104)² + (0.16 - 0.104)² + (0.11 - 0.104)² + (0.1 - 0.104)²] / 5 - 1

Variance = [0.005776 + 0.017956 + 0.003136 + 0.000036 + 0.000016] / 4

Variance = 0.00673

3)

Standard deviation = (Variance)^1/2

Standard deviation = (0.00673)^1/2

Standard deviation = 0.0820 or 8.20%