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Question 2. You've observed the following returns on Pine Computer's stock over the past five years: 17 percent, -4 percent, 20 percent, 12 percent, and

Question 2.

You've observed the following returns on Pine Computer's stock over the past five years:

17 percent, -4 percent, 20 percent, 12 percent, and 10 percent.

A. What was the arithmetic average return on the company's stock over this five-year period? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)

b-1. What was the variance of the company's returns over this period? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 16161.)

b-2. What was the standard deviation of the company's returns over this period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

a. Average return

%

b-1. Variance

b-2. Standard deviation

%

Question 3.

A stock has had returns of 13 percent, 20 percent, 22 percent, -11 percent, 27 percent, and -5 percent over the last six years. What are the arithmetic and geometric average returns for the stock? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Arithmetic average return

%

Geometric average return

%

Question 4.

Consider the following information:

Rate of Return if State Occurs

State of Economy

Probability of State economy

Stock a

Stock b

Recession

.18

.07

-.18

Normal

.55

.10

.11

Boom

.27

.15

.28

  • Calculate the expected return for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

  • Calculate the standard deviation for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

a. Stock A expected return

%

a. Stock B expected return

%

B. Stock A standard deviation

%

B. Stock B standard deviation

%

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