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Problems On Risk

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Sourav Das
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4 views2 pages

Problems On Risk

Uploaded by

Sourav Das
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

PROBLEMS ON RISK

1. During the past 5 years the return from a stock are as follows:

Year 1 2 3 4 5
Return 0.07 0.03 -0.09 0.06 0.10
Compute the following:
i. AM
ii. Variance
iii. SD

Solution:

i. AM= R’= (0.07+0.03-0.09+0.06+0.10)/ 5 = 0.034 = 3.4%


ii. Computation of Variance

Year Return (%) (R – R’) (R – R’)2


1 7 3.6 12.96
2 3 -0.4 0.16
3 -9 -12.4 153.76
4 6 2.6 6.76
5 10 6.6 43.56
217.2

Variance= 217.2/5 = 43.44

iii. SD= √Variance = 6.59%

2. Calculate variance and S.D. for a stock using the following probability distribution of return:

Possible return Probability


30 0.1
40 0.3
50 0.4
70 0.1
80 0.1

Possible Return Probability Ri – E(R) [Ri – E(R)]2 Pi [Ri – E(R)]2


30 0.1 -20 400 40
40 0.3 -10 100 30
50 0.4 0 0 0
70 0.1 20 400 40
80 0.1 30 900 90
200

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