Question
Sun Corporation has had returns of -6 percent, 16 percent, 18 percent, and 28 percent for the past four years. Calculate the standard deviation of
Sun Corporation has had returns of -6 percent, 16 percent, 18 percent, and 28 percent for the past four years. Calculate the standard deviation of the returns using the correction for the loss of a degree of freedom shown below.
When variance is estimated from a sample of observed returns, we add the squared deviations and divide by N -1, where N is the number of observations. We divide by N -1 rather than N to correct for a loss of a degree of freedom. The formula is
Where is the market return in period t and rm is the mean of the values of rmt.
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