3. The standard deviation is often used by investors to measure the risk of a stock...

  

 

Transcribed Image Text:

3. The standard deviation is often used by investors to measure the risk of a stock or a stock portfolio. The basic idea is that the standard deviation is a measure of volatility: the more a stock s returns vary from the stock s average return, the more volatile the stock. Consider the following two stock portfolios and their respective returns (in percent) over the last six months. A Value Return (3) Final Value 0.75 1,008 1,018 1,048 1,032 1,038 1,058 1,000 1,008 1,018 1,048 1,032 1,038 B Value Return (%) Final Value 1.50 1,015 5.00 1,066 12.00 1,194 -9.00 1,086 -4.00 1.50 1,000 1,015 1.00 3.00 -1.50 0.50 2.00 1,194 1,096 1,043 1,043 1,058 Questions: a) Use your calculator to compute the mean, median, range, sample standard deviation and sample variance for the six percent-returns (Return % column) of both stock portfolios (do not convert the values in the returns column to decimal form). Round your answers to 3 decimal places. Refer to page 169-170 for instructions on how to compute descriptive statistics on the TI-84/83. Returns (%) Portfolio A (Returns %) Portfolio B (Returns %) Mean Median Range Standard deviation Variance b) Compare the final values of the portfolio during the six-month period. Describe any trend or trends? c) Compare the range and the standard deviation of the six returns of both portfolios. Which stock portfolio is considered more volatile? Explain why. 3. The standard deviation is often used by investors to measure the risk of a stock or a stock portfolio. The basic idea is that the standard deviation is a measure of volatility: the more a stock s returns vary from the stock s average return, the more volatile the stock. Consider the following two stock portfolios and their respective returns (in percent) over the last six months. A Value Return (3) Final Value 0.75 1,008 1,018 1,048 1,032 1,038 1,058 1,000 1,008 1,018 1,048 1,032 1,038 B Value Return (%) Final Value 1.50 1,015 5.00 1,066 12.00 1,194 -9.00 1,086 -4.00 1.50 1,000 1,015 1.00 3.00 -1.50 0.50 2.00 1,194 1,096 1,043 1,043 1,058 Questions: a) Use your calculator to compute the mean, median, range, sample standard deviation and sample variance for the six percent-returns (Return % column) of both stock portfolios (do not convert the values in the returns column to decimal form). Round your answers to 3 decimal places. Refer to page 169-170 for instructions on how to compute descriptive statistics on the TI-84/83. Returns (%) Portfolio A (Returns %) Portfolio B (Returns %) Mean Median Range Standard deviation Variance b) Compare the final values of the portfolio during the six-month period. Describe any trend or trends? c) Compare the range and the standard deviation of the six returns of both portfolios. Which stock portfolio is considered more volatile? Explain why.

Answer rating: 100% (QA)

The Standard Deviation Is Often Used By Investors To Measure The Risk Of A Stock Or a stock portfoli... View the full answer