Question

The rates of return on Cherry Jalopies, Inc., stock over the last five years were 22 percent, 11 percent, −4 percent, 6 percent, and 9 percent. Over the same period, the returns on Straw Construction Company's stock were 16 percent, 23 percent, −1 percent, 1 percent, and 17 percent. Calculate the variances and the standard deviations for Cherry and Straw

Answer 1

Cherry Jalopies, Inc.:

mean = (0.22 + 0.11 - 0.04 + 0.06 + 0.09) / 5 = 0.52 / 5 = 0.104

variance = [(0.22 - 0.104)² + (0.11 - 0.104)² + (-0.04 - 0.104)² + (0.06 - 0.104)² + (0.09 - 0.104)²] / 5 = (0.013456 + 0.000036 + 0.020736 + 0.001936 + 0.000196) / 5 = 0.007272

standard deviation = √0.007272 = 0.085276 = 8.53%

Straw Construction Company:

mean = (0.16 + 0.23 - 0.01 + 0.01 + 0.17) / 5 = 0.56 / 5 = 0.112

variance = [(0.16 - 0.112)² + (0.23 - 0.112)² + (-0.01 - 0.112)² + (0.01 - 0.112)² + (0.17 - 0.112)²] / 5 = (0.002304 + 0.013924 + 0.014884 + 0.010404 + 0.003364) / 5 = 0.008976

standard deviation = √0.008976 = 0.09474 = 9.47%