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Computation of Return, Variance and Standard Deviation

1) From the following information, compute the average annual return, the variance, standard deviation,and coefficient of variation for each asset.

Asset Annual Returns

A 5%, 10%, 15%, 4%

B -6%, 20%, 2%, -5%, 10%

C 12%,15%, 17%

D 10%, -10%,20%, -15%,8%, -7%

2) Also, if possible based on above answer, can you explain to me which asset appears riskiest based on standard deviation? Based on coefficient variation.

Solution Preview

Please see the attached file.

Return is income earned on the investments. In stocks income is earned either by way of dividend or capital gain. Risk is the uncertainty that you may not earn your expected return on your investments. For example, you may expect to earn 20% on your stock mutual fund every year. But your actual rate of return may be much lower. Average annual return denotes expected return from the asset.

The risk-return trade-off requires that you accept more risk in exchange for the chance to earn a higher rate of return. If unwilling, you should expect to earn a lower ...

Solution Summary

This explains the process of computation and interpretation of return, variance and standard deviation

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