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Calculating mean and standard deviation

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Suppose the security I and security J have the following historical returns:
Year kI kJ
2001 20% 40%
2002 29 36
2003 -12 -25

1. What is the (arithmetic) average return on security I?
2. What is the standard deviation of the return on security I? (Use n-1 for the denominator.)
3. Suppose you invest 50% of your money in I and the rest in J to form a portfolio P. What is the average return on portfolio P?
4. What is the standard deviation of the return on portfolio P? (Use n-1 for the denominator.)

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Solution Summary

Solution describes the steps to calculate mean and standard deviation of historical returns for given stocks and portfolio.

Solution Preview

Please refer attached file for better clarity of tables. Some of the formulas may be missing here.

Solution:

1. What is the (arithmetic) average return on security I?
Arithmetic average return on security I=(20%+29%-12%)/3=12.33%

2. What is the standard deviation of the return on security I? (Use n-1 for the denominator.)
Mean=arithmetic average ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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