Question

You find a certain stock that had returns of 14 percent, −11 percent, 21 percent, and 22 percent for four of the last five years. The average return of the stock over this period was 12 percent.

What was the stock’s return for the missing year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Stock’s return %
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.)
Standard deviation %

Answer 1

Answer and Explanation:

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

a. Let us assume the fifth year stock return be x

As we know that

Average rate of return = Total returns ÷ number of years

0.12 = (0.1 - 0.11 + 0.21 + 0.22 + x) ÷ 5

So after solving this, the x is 14%

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

The standard deviation is 13.40%