Using the returns below for 5 years:

a. Calculate the arithmetic average return

b. Calculate the geometric average return

c. After that, using the arithmetic average as your mean, calculate the variance and standard deviation for these returns.

Year 1 2 3 4 5

Return (%) 25 -2 12 16 0

2. Following the lecture videos and PowerPoints from class and using the following returns and probabilities for those returns, answer the following question:

a. What is the weighted average return for IBM?

b. What is the variance and standard deviation of return for IBM?

IBM Returns -10 0 10 25 35

Probability (%) 5 10 50 25 10

3. Now, suppose that you have a stock with an average return of 12% and a standard deviation of 8 percent. Using the standard normal table (Z-table) and your Z-score calculation answer the following questions:

a. What is the probability of a return greater than 12%?

b. What is the probability of a negative return?

c. What is the probability of a return between 16% and 20%?