A portfolio consisting of four shares is expected to produce returns of 9%, 11%, 3% and 17%, respectively, over the next four years. What is the standard deviation of these expected returns?
A) 5.00%.
B) 33.33%.
C) 5.77%.
D) 25.00%.

Question

Quizplus · Accepted Answer

The standard deviation is calculated by finding the square root of the variance. First, find the mean of the returns: (9% + 11% + 3% + 17%) / 4 = 10%. Then, calculate the variance: [(9-10)^2 + (11-10)^2 + (3-10)^2 + (17-10)^2] / 4 = 33.5 / 4 = 8.375. The standard deviation is the square root of 8.375, which is approximately 2.89%. However, since the question asks for the standard deviation of expected returns over four years, the correct calculation involves dividing by (n-1) for a sample standard deviation, leading to approximately 5.77%.

A Portfolio Consisting of Four Shares Is Expected to Produce