An asset had returns of 7.7, 5.4, 3.6, −4.2, and −1.3 percent, respectively, over the past five years. What is the variance of these returns?
A).00173
B).00184
C).00216
D).00239
E).00259

Question

Quizplus · Accepted Answer

The variance of a set of returns is the average of the squared differences between each return and the average return. The average return is (7.7 + 5.4 + 3.6 - 4.2 - 1.3) / 5 = 2.0%. The squared differences between each return and the average return are (7.7 - 2.0)^2 = 32.49, (5.4 - 2.0)^2 = 12.96, (3.6 - 2.0)^2 = 3.24, (-4.2 - 2.0)^2 = 36.00, and (-1.3 - 2.0)^2 = 10.89. The average of these squared differences is (32.49 + 12.96 + 3.24 + 36.00 + 10.89) / 5 = 19.52. Therefore, the variance of the returns is 19.52%.

An Asset Had Returns of 7