Question

You find a certain stock that had returns of 16 percent, −9 percent, 23 percent, and 24 percent for four of the last five years. The average return of the stock over this period was 14.4 percent. a. What was the stock’s return for the missing year? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) b. What is the standard deviation of the stock’s returns? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

a. 18%

b. 13.50%

Step-by-step explanation:

The computation of the stock return for the missing year is shown below:

a. Let the fifth year stock return be x

Average rate of return = Total returns ÷ number of years

0.14.4 = (0.16 - 0.09 + 0.23 + 0.24 + x) ÷ 5

So after solving this, the x is 18%

b. Now the standard deviation of the stock return is shown in the excel spreadsheet

The standard deviation is 13.50%