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Microsoft and Lotus Development Corporation

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10. Suppose the following represents the historical returns for Microsoft and Lotus Development Corporation:

Historical Returns
year MSFT LOTS
1 10% 9%
2 15% 12%
3 -12% -7%
4 20% 18%
5 7% 5%
a. What is the mean return for Microsoft? For Lotus?

b. What is the standard deviation of returns for Microsoft? For Lotus?

c. Suppose the returns for Microsoft and Lotus have normally distributed returns with means and standard deviations calculated as shown. For each stock, determine the range of returns within one expected standard deviation of the mean and within two standard deviations of the mean.

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This solution is comprised of a detailed explanation to calculate mean return and standard deviation for Microsoft and Lotus.

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10. Suppose the following represents the historical returns for Microsoft and Lotus Development Corporation:

Historical Returns
year MSFT LOTS
1 10% 9%
2 15% 12%
3 -12% -7%
4 20% 18%
5 7% 5%
a. What is the mean return for Microsoft? For Lotus?

µ = (Ʃ Ri)/5

MSFT = (10% + 15% + (-12%) + 20% + 7%)/5 = ...

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