ch 12 solution - X =.020370 1/2 =.1427 or 14.27 Y =.081830...

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1. The return of any asset is the increase in price, plus any dividends or cash flows, all divided by the initial price. The return of this stock is: R = [($97 84) + 2.05] / $84 = .1792 or 17.92% 7. The average return is the sum of the returns, divided by the number of returns. The average return for each stock was: % . . . . . N x X N i i 8.80 or .0880 5 15 14 13 24 06 1
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% . . . . . . N y Y N i i 60 15 or .1560 5 47 20 06 39 18 1 Remembering back to “sadistics,” we calculate the variance of each stock as: 081830 156 47 156 20 156 06 156 39 156 18 1 5 1 020370 088 15 088 14 088 13 088 24 088 06 1 5 1 1 2 2 2 2 2 2 2 2 2 2 2 2 1 2 2 . . . . . . . . . . . . . . . . . . . . . . N x x Y X N i i X The standard deviation is the square root of the variance, so the standard deviation of each stock is:
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Unformatted text preview: X = (.020370) 1/2 = .1427 or 14.27% Y = (.081830) 1/2 = .2861 or 28.61% 9. a . To find the average return, we sum all the returns and divide by the number of returns, so: Average return = (.02 –.08 +.24 +.19 +.12)/5 = .0980 or 9.80% b . Using the equation to calculate variance, we find: Variance = 1/4[(.02 – .098) 2 + (–.08 – .098) 2 + (.24 – .098) 2 + (.19 – .098) 2 + (.12 – .098) 2 ] Variance = 0.01672 So, the standard deviation is: Standard deviation = (0.01672) 1/2 = 0.1293 or 12.93%...
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