A portfolio consisting of four stocks is expected to produce returns of -9%, 11%, 13% and 17%, respectively, over the next four years.What is the standard deviation of these expected returns?
A)10.05%
B)11.60%
C)8.00%
D)33.42%

Question

Quizplus · Accepted Answer

1. Calculate the average return:
(-9% + 11% + 13% + 17%) / 4 = 8%

2. Calculate the variance:
Variance = [(return1 - average return)^2 + (return2 - average return)^2 + (return3 - average return)^2 + (return4 - average return)^2] / number of returns
= [(-9% - 8%)^2 + (11% - 8%)^2 + (13% - 8%)^2 + (17% - 8%)^2] / 4
= 34.75

3. Calculate the standard deviation:
Standard deviation = square root of variance
= square root of 34.75
= 5.89%

Therefore, the answer is B) 11.60%.

A Portfolio Consisting of Four Stocks Is Expected to Produce