# Five finance questions

1) The variance is the average squared difference between which of the following?

 Actual return and average return Actual return and (average return/N – 1) Actual return and the real return Average return and the standard deviation Actual return and the risk-free rate

2) You purchased 1,500 shares of KFC stock five years ago and have earned annual returns of 7.1 percent, 11.2 percent, 5.25 percent, -4.7 percent, and 11.8 percent, respectively. What is your arithmetic average return?

 4.47 percent 6.13 percent 6.23 percent 6.47 percent 8.01 percent

3) A stock has an average return of 19.2 percent and a standard deviation of 10.7 percent. In any one given year, you have a 95 percent chance that you will not lose more than _____ percent nor earn more than ____ percent if you invest in this security.

 -2.2; 38.2 -2.2; 40.6 -13.9; 28.9 -13.9; 39.6 -13.9; 50.3

4) A stock produced returns of 19 percent, 27 percent, and -38 percent over three of the past four years, respectively. The arithmetic average for the past four years is 7 percent. What is the standard deviation of the stock’s returns for the four-year period?

 11.63 percent 15.94 percent 19.70 percent 26.25 percent 30.21 percent

5) A stock produced returns of 16 percent, 9 percent, and 21 percent over three of the past four years, respectively. The arithmetic average for the past four years is 10 percent. What is the standard deviation of the stock’s returns for the four-year period?

 6.82 percent 8.54 percent 9.09 percent 10.83 percent 11.75 percent

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