The historical returns for the past three years for Stock B and the stock market portfolio are: Stock B: 24%,0%,24%; Market portfolio: 10%,12%,20%.Calculate the observed variance of the market portfolio returns.

Question

Quizplus · Accepted Answer

The variance is calculated by finding the average of the squared deviations from the mean. The mean of the market portfolio returns is (10% + 12% + 20%) / 3 = 14%. The squared deviations are (10% - 14%)^2, (12% - 14%)^2, and (20% - 14%)^2, which are 16, 4, and 36 respectively. The average of these squared deviations is (16 + 4 + 36) / 3 = 56 / 3 = 18.7.

The Historical Returns for the Past Three Years for Stock