Given the following historical returns, what is the variance? Year 1 = 8%; year 2 = -12%; year 3 = 6%; year 4 = 1%; year 5 = -19%.

Question

Quizplus · Accepted Answer

To calculate the variance of these returns, first, find the mean (average) return: $ \frac{8 - 12 + 6 + 1 - 19}{5} = -3.2\% $. Then, calculate the squared deviations from the mean for each year, sum them, and divide by the number of observations minus one (for sample variance): $ \frac{(8 - (-3.2))^2 + (-12 - (-3.2))^2 + (6 - (-3.2))^2 + (1 - (-3.2))^2 + (-19 - (-3.2))^2}{5 - 1} = 0.0139 $ or 1.39%.

Given the Following Historical Returns, What Is the Variance? Year