Question

Calculate the variance of returns for Alpha stock with the following historical rates of return: 2013 20% 2014 25% 2015 30%

Answer 1

Answer: 16.67

Step-by-step explanation:

The expected return (D1) = (20% + 25% + 30%) / 3 = 75% / 3 = 25%

Variance for 2013 = (20% - 25%)^2 = 25

Variance for 2014 = (25% - 25%)^2 = 0

Variance for 2015 = (30% - 25%)^2 = 25

Variance for Alpha stock will now be:

= (25% + 0 + 25%) / 3

= 50% / 3

= 16.67