You have been following a stock for 6 months and the following is its past return Year 1: -5%Year 2: -10%Year 3: 15%Year 4: 5%Year 5: 10%Year 6: 15% What is the expected return and standard deviation of the stock based on the historical data?Assume normal distribution, what is VaR at 5% for this stock?What is the Sharpe ratio of the stock based on historical data, risk free rate is 1%?

Expected return and standard deviation of a stock can be calculated using the below formula.…

Answered: You have been following a stock for 6…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 1P: The standard deviation of stock returns for Stock A is 40%. The standard deviation of the market...

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You have been following a stock for 6 months and the following is its past return

Year 1: -5%

Year 2: -10%

Year 3: 15%

Year 4: 5%

Year 5: 10%

Year 6: 15%

What is the expected return and standard deviation of the stock based on the historical data?
Assume normal distribution, what is VaR at 5% for this stock?
What is the Sharpe ratio of the stock based on historical data, risk free rate is 1%?

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

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