(14 marks) a. Calculate the mean and standard deviation of the following securities' returns and enter them...
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(14 marks)
- a. Calculate the mean and standard deviation of the following securities' returns and enter them in the table below: (4 marks)
Year | Computroids Inc. | Blazers Inc. |
1 | 10% | 5% |
2 | 5% | 6% |
3 | -3% | 7% |
4 | 12% | 8% |
5 | 10% | 9% |
Mean | 6.8 | 7.0 |
Standard deviation | 6.05% | 1.58% |
- Assuming these observations are drawn from a normally distributed probability distribution, we know that about 68.27% of values are within one standard deviation above and below the mean or expected return; about 95.45% of the values are within two standard deviations, and about 99.73% lie within three standard deviations. For simplicity, these are commonly called the 68%, 95%, and 99% confidence intervals.
Using your calculations from part a, calculate the 68%, 95% and 99% confidence intervals for the two stocks. To calculate the 68%, calculate the top of the confidence interval range by adding one standard deviation to the expected return, and calculate the bottom of the confidence interval by subtracting one standard deviation from the expected return. For 95%, use two standard deviations, and for 99%, use three.
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