Risk & Return

I.K. Gunarta
Tingkat pengembalian
yang tinggi pada
umumnya memiliki
risiko yang tinggi pula
Tingkat Pengembalian

Surat-surat Pengembalian Diviasi Standar Pengembalian Premi

Berharga Nominal Rata- Pengembalian Rata-rata Riil Risiko
rata per Tahun Tahunan
Saham perusahaan- 16,9% 32,2% 13,8% 13,1%
perusahaan kecil
Saham perusahaan- 12,2 20,5 9,1 8,4
perusahaan besar
Obligasi jangka 6,2 8,7 3,1 2,4
panjang korporasi
Obligasi jangka 5,8 9,4 2,7 2,0
panjang Pemerintah
US Treasury Bill 3,8 3,2 0,7 0,0

Finance – I.K. Gunarta 6

Tingkat Pengembalian

▪ Treasury Bill memiliki risiko yang paling kecil dari kelima portfolio
karena TB memiliki waktu jatuh tempo yang singkat, maka
harganya bervolatilitas lebih kecil (risiko lebih kecil) dibanding
surat-surat berharga jangka panjang lainnya.
▪ Perusahaan kecil yang dimaksud adalah perusahaan kecil yang
terdaftar di Bursa NY (20% dari total).
▪ Perusahaan kecil terlalu mengandalkan pembiayaan dari hutang.

Finance – I.K. Gunarta 7

For a Treasury security, what is
the required rate of return?
For a Treasury security, what is
the required rate of return?

Required
rate of =
return
 For a Treasury security, what is
the required rate of return?

Required Risk-free
rate of = rate of
return return
Since Treasuries are essentially free of
default risk, the rate of return on a
Treasury security is considered the
“risk-free” rate of return.
 For a corporate stock or bond,
what is the required rate of return?
 For a corporate stock or bond,
what is the required rate of return?

Required
rate of =
return
 For a corporate stock or bond,
what is the required rate of return?

Required Risk-free
rate of = rate of
return return
 For a corporate stock or bond,
what is the required rate of return?

Required Risk-free Risk

rate of = rate of + premium
return return

How large of a risk premium should we

require to buy a corporate security?
 Returns

▪ Expected Return - the return that an

investor expects to earn on an asset,
given its price, growth potential, etc.

▪ Required Return - the return that an

investor requires on an asset given
its risk and market interest rates.
 Expected Return

State of Probability Return

Economy (P) Orl. Utility Orl. Tech
Recession .20 4% -10%
Normal .50 10% 14%
Boom .30 14% 30%
For each firm, the expected return on the
stock is just a weighted average:
 Expected Return

State of Probability Return

Economy (P) Orl. Utility Orl. Tech
Recession .20 4% -10%
Normal .50 10% 14%
Boom .30 14% 30%
For each firm, the expected return on the
stock is just a weighted average:

k = P(k1)*k1 + P(k2)*k2 + ...+ P(kn)*kn

 Expected Return

State of Probability Return

Economy (P) Orl. Utility Orl. Tech
Recession .20 4% -10%
Normal .50 10% 14%
Boom .30 14% 30%

k = P(k1)*k1 + P(k2)*k2 + ...+ P(kn)*kn

k (OU) = .2 (4%) + .5 (10%) + .3 (14%) = 10%

 Expected Return

State of Probability Return

Economy (P) Orl. Utility Orl. Tech
Recession .20 4% -10%
Normal .50 10% 14%
Boom .30 14% 30%

k = P(k1)*k1 + P(k2)*k2 + ...+ P(kn)*kn

k (OI) = .2 (-10%)+ .5 (14%) + .3 (30%) = 14%

Based only on your
expected return
calculations, which
stock would you
prefer?
Have you considered
RISK?
 What is Risk?

▪ The possibility that an actual return

will differ from our expected return.
▪ Uncertainty in the distribution of
possible outcomes.
 What is Risk?
▪ Uncertainty in the distribution of
possible outcomes.
 What is Risk?
▪ Uncertainty in the distribution of
possible outcomes.

Company A
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
4 8 12

return
 What is Risk?
▪ Uncertainty in the distribution of
possible outcomes.

Company A Company B
0.5
0.2
0.45
0.18
0.4
0.16
0.35
0.14
0.3
0.12
0.25
0.1
0.2
0.08
0.15
0.06
0.1
0.04
0.05
0.02
0
4 8 12 0
-10 -5 0 5 10 15 20 25 30

return return
 How do We Measure Risk?
▪ To get a general idea of a stock’s
price variability, we could look at
the stock’s price range over the
past year.

52 weeks Yld Vol Net

Hi Lo Sym Div % PE 100s Hi Lo Close Chg
134 80 IBM .52 .5 21 143402 98 95 9549 -3

115 40 MSFT … 29 558918 55 52 5194 -475

 How do We Measure Risk?

▪ A more scientific approach is to

examine the stock’s standard
deviation of returns.
▪ Standard deviation is a measure of
the dispersion of possible outcomes.
▪ The greater the standard deviation,
the greater the uncertainty, and,
therefore, the greater the risk.
 Standard Deviation

s= S
n
(ki - k) 2 P(ki)
i=1
 Expected Return

State of Probability Return

Economy (P) Orl. Utility Orl. Tech
Recession .20 4% -10%
Normal .50 10% 14%
Boom .30 14% 30%
s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Utility, Inc.

s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Utility, Inc.

( 4% - 10%)2 (.2) = 7.2
s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Utility, Inc.

( 4% - 10%)2 (.2) = 7.2
(10% - 10%)2 (.5) = 0
s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Utility, Inc.

( 4% - 10%)2 (.2) = 7.2
(10% - 10%)2 (.5) = 0
(14% - 10%)2 (.3) = 4.8
s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Utility, Inc.

( 4% - 10%)2 (.2) = 7.2
(10% - 10%)2 (.5) = 0
(14% - 10%)2 (.3) = 4.8
Variance = 12
s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Utility, Inc.

( 4% - 10%)2 (.2) = 7.2
(10% - 10%)2 (.5) = 0
(14% - 10%)2 (.3) = 4.8
Variance = 12
Stand. dev. = 12 =
s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Utility, Inc.

( 4% - 10%)2 (.2) = 7.2
(10% - 10%)2 (.5) = 0
(14% - 10%)2 (.3) = 4.8
Variance = 12
Stand. dev. = 12 = 3.46%
s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Technology, Inc.

s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Technology, Inc.

(-10% - 14%)2 (.2) = 115.2
s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Technology, Inc.

(-10% - 14%)2 (.2) = 115.2
(14% - 14%)2 (.5) = 0
s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Technology, Inc.

(-10% - 14%)2 (.2) = 115.2
(14% - 14%)2 (.5) = 0
(30% - 14%)2 (.3) = 76.8
s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Technology, Inc.

(-10% - 14%)2 (.2) = 115.2
(14% - 14%)2 (.5) = 0
(30% - 14%)2 (.3) = 76.8
Variance = 192
s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Technology, Inc.

(-10% - 14%)2 (.2) = 115.2
(14% - 14%)2 (.5) = 0
(30% - 14%)2 (.3) = 76.8
Variance = 192
Stand. dev. = 192 =
s=
n

S (ki -
i=1
k) 2 P(ki)

Orlando Technology, Inc.

(-10% - 14%)2 (.2) = 115.2
(14% - 14%)2 (.5) = 0
(30% - 14%)2 (.3) = 76.8
Variance = 192
Stand. dev. = 192 = 13.86%
 Summary

Orlando Orlando
Utility Technology

Expected Return 10% 14%

Standard Deviation 3.46% 13.86%

It depends on your tolerance for risk!

Remember, there’s a tradeoff between

risk and return.
It depends on your tolerance for risk!

Return

Risk
Remember, there’s a tradeoff between
risk and return.
It depends on your tolerance for risk!

Return

Risk
Remember, there’s a tradeoff between
risk and return.
 Portfolios

▪ Combining several securities

in a portfolio can actually
reduce overall risk.
▪ How does this work?
 Suppose we have stock A and stock B.
The returns on these stocks do not tend
to move together over time (they are
not perfectly correlated).

rate
of
return

time
 Suppose we have stock A and stock B.
The returns on these stocks do not tend
to move together over time (they are
not perfectly correlated).
kA
rate
of
return

time
 Suppose we have stock A and stock B.
The returns on these stocks do not tend
to move together over time (they are
not perfectly correlated).
kA
rate
of
return kB

time
 What has happened to the
variability of returns for the
portfolio?

kA
rate
of
return kB

time
 What has happened to the
variability of returns for the
portfolio?

kA
rate kp
of
return kB

time
 Diversification

▪ Investing in more than one security

to reduce risk.
▪ If two stocks are perfectly positively
correlated, diversification has no
effect on risk.
▪ If two stocks are perfectly negatively
correlated, the portfolio is perfectly
diversified.
▪ If you owned a share of every stock
traded on the NYSE and NASDAQ,
would you be diversified?
YES!
▪ Would you have eliminated all of
your risk?
NO! Common stock portfolios still
have risk.
 Some risk can be diversified
away and some cannot.
▪ Market risk (systematic risk) is
nondiversifiable. This type of risk
cannot be diversified away.
▪ Company-unique risk (unsystematic
risk) is diversifiable. This type of risk
can be reduced through
diversification.
Market Risk (Risiko Pasar)
▪ Perubahan tingkat suku bunga yang tak
terduga.
▪ Perubahan tak terduga pada arus kas karena
perubahan tarif pajak, persaingan internasional,
dan siklus bisnis secara keseluruhan.

Finance – I.K. Gunarta 75

Risiko perusahaan (Company-Unique Risk)

▪ Tenaga kerja perusahaan mogok.

▪ Manajemen puncak sebuah perusahaan
meninggal dalam kecelakaan pesawat.
▪ Ledakan tangki minyak dan banjir besar pada
area produksi perusahaan.

Finance – I.K. Gunarta 76

As you add stocks to your portfolio,
company-unique risk is reduced.
 As you add stocks to your portfolio,
company-unique risk is reduced.

portfolio
risk

number of stocks
 As you add stocks to your portfolio,
company-unique risk is reduced.

portfolio
risk

Market risk
number of stocks
 As you add stocks to your portfolio,
company-unique risk is reduced.

portfolio
risk

company-
unique
risk

Market risk
number of stocks
 Do some firms have more
market risk than others?
Yes. For example:
Interest rate changes affect all firms, but which would
be more affected:

a) Retail food chain

b) Commercial bank
 Do some firms have more
market risk than others?
Yes. For example:
Interest rate changes affect all firms, but which would
be more affected:

a) Retail food chain

b) Commercial bank
▪ Note
As we know, the market compensates
investors for accepting risk - but
only for market risk. Company-
unique risk can and should be
diversified away.

So - we need to be able to measure

market risk.
 This is why we have Beta.
Beta: a measure of market risk.
▪ Specifically, beta is a measure of how
an individual stock’s returns vary
with market returns.

▪ It’s a measure of the “sensitivity” of

an individual stock’s returns to
changes in the market.
 The market’s beta is 1
▪ A firm that has a beta = 1 has average
market risk. The stock is no more or less
volatile than the market.
▪ A firm with a beta > 1 is more volatile than
the market.
 The market’s beta is 1
▪ A firm that has a beta = 1 has average
market risk. The stock is no more or less
volatile than the market.
▪ A firm with a beta > 1 is more volatile than
the market.
▪ (ex: technology firms)
 The market’s beta is 1
▪ A firm that has a beta = 1 has average
market risk. The stock is no more or less
volatile than the market.
▪ A firm with a beta > 1 is more volatile than
the market.
▪ (ex: technology firms)
▪ A firm with a beta < 1 is less volatile than
the market.
 The market’s beta is 1
▪ A firm that has a beta = 1 has average
market risk. The stock is no more or less
volatile than the market.
▪ A firm with a beta > 1 is more volatile than
the market.
▪ (ex: technology firms)
▪ A firm with a beta < 1 is less volatile than
the market.
▪ (ex: utilities)
Calculating Beta
 Calculating Beta
XYZ Co. returns
15

10

5
S&P 500
returns
-15 -10 -5 -5 5 10 15

-10

-15
 Calculating Beta
XYZ Co. returns
15
.. .
. .
10 . . . .
. .
.. . .
.. . .
5
S&P 500 .. . .
returns
-15 -10
.
-5 -5
. . .
5 10 15
.. . .
. . . . -10
.. . .
. . . -15.
 Calculating Beta
XYZ Co. returns
15
.. .
. .
10 . . . .
. .
.. . .
.. . .
5
S&P 500 .. . .
returns
-15 -10
.
-5 -5
. . .
5 10 15
.. . .
. . . . -10
.. . .
. . . -15.
 Calculating Beta
Beta = slope
XYZ Co. returns = 1.20
15
.. .
. .
10 . . . .
. .
.. . .
.. . .
5
S&P 500 .. . .
returns
-15 -10
.
-5 -5
. . .
5 10 15
.. . .
. . . . -10
.. . .
. . . -15.
TAHUN BULAN HARLEY-DAVIDSON S & P 500 INDEX
Harga Pengembalian Harga Pengembalian
May 37.25 - 1,420.60 -
June 38.50 3.36% 1,454.60 2.39%
July 44.88 16.57% 1,430.83 -1.63%
August 49.81 10.98% 1,517.68 6.07%
2000
September 47.88 -3.87% 1,436.51 -5.35%
October 48.19 0.65% 1,429.40 -0.49%
November 45.44 -5.71% 1,314.95 -8.01%
December 39.75 -12.52% 1,320.28 0.41%
January 45.39 14.19% 1,366.01 3.46%
February 43.35 -4.49% 1,239.94 -9.23%
March 37.95 -12.46% 1,160.33 -6.42%
April 46.09 21.45% 1,249.46 7.68%
May 46.97 1.91% 1,255.82 0.51%
June 47.08 0.23% 1,224.42 -2.50%
2001
July 51.61 9.62% 1,211.23 -1.08%
August 48.59 -5.85% 1,133.58 -6.41%
September 40.50 -16.65% 1,040.94 -8.17%
October 45.26 11.75% 1,059.78 1.81%
November 52.58 16.17% 1,139.45 7.52%
December 54.31 3.29% 1,148.08 0.76%
January 57.00 4.95% 1,130.20 -1.56%
February 51.26 -10.07% 1,106.73 -2.08%
2002 March 55.13 7.55% 1,147.39 3.67%
April 52.99 -3.88% 1,076.92 -6.14%
May 52.58 -0.77% 1,067.14 -0.91%

Pengembalian rata-rata bulanan 1.93% -1.07%

Deviasi standar 10.16% 4.86%
Slope = 1.6
 Summary:

▪ We know how to measure risk, using

standard deviation for overall risk
and beta for market risk.
▪ We know how to reduce overall risk
to only market risk through
diversification.
▪ We need to know how to price risk so
we will know how much extra return
we should require for accepting extra
risk.
 What is the Required Rate of
Return?

▪ The return on an investment

required by an investor given
market interest rates and the
investment’s risk.
Required
rate of =
return
Required Risk-free
rate of = rate of +
return return
Required Risk-free Risk
rate of = rate of + premium
return return
Required Risk-free Risk
rate of = rate of + premium
return return

market
risk
Required Risk-free Risk
rate of = rate of + premium
return return

market company-
risk unique risk
Required Risk-free Risk
rate of = rate of + premium
return return

market company-
risk unique risk

can be diversified
away
Required
rate of
Let’s try to graph this
return
relationship!

Beta
Required
rate of
return

12% .

Risk-free
rate of
return
(6%)

1 Beta
Required
rate of security
return market
line
12% . (SML)

Risk-free
rate of
return
(6%)

1 Beta
This linear relationship between
risk and required return is
known as the Capital Asset
Pricing Model (CAPM).
Required SML
rate of
return

12% .

Risk-free
rate of
return
(6%)

0 1 Beta
Required SML
rate of Is there a riskless
return (zero beta) security?

12% .

Risk-free
rate of
return
(6%)

0 1 Beta
Required SML
rate of Is there a riskless
return (zero beta) security?

12% . Treasury
securities are
as close to riskless
Risk-free
rate of
as possible.
return
(6%)

0 1 Beta
Required SML
rate of Where does the S&P 500
return fall on the SML?

12% .

Risk-free
rate of
return
(6%)

0 1 Beta
Required SML
rate of Where does the S&P 500
return fall on the SML?

12% .
The S&P 500 is
a good
Risk-free approximation
rate of for the market
return
(6%)

0 1 Beta
Required SML
rate of
return
Utility
Stocks
12% .

Risk-free
rate of
return
(6%)

0 1 Beta
Required High-tech SML
rate of
stocks
return

12% .

Risk-free
rate of
return
(6%)

0 1 Beta
The CAPM equation:
 The CAPM equation:

kj = krf + b j (km - krf )

 The CAPM equation:

kj = krf + b j (km - krf )

where:
kj = the required return on security
j,
krf = the risk-free rate of interest,
b j = the beta of security j, and
km = the return on the market index.
 Example:

▪ Suppose the Treasury bond rate is

6%, the average return on the
S&P 500 index is 12%, and Walt
Disney has a beta of 1.2.
▪ According to the CAPM, what
should be the required rate of
return on Disney stock?
 kj = krf + b (km - krf )
kj = .06 + 1.2 (.12 - .06)
kj = .132 = 13.2%

According to the CAPM, Disney

stock should be priced to give a
13.2% return.
Required SML
rate of
return

12% .

Risk-free
rate of
return
(6%)

0 1 Beta
Required SML
rate of
Theoretically, every
return security should lie
on the SML

12% .

Risk-free
rate of
return
(6%)

0 1 Beta
Required SML
rate of
Theoretically, every
return security should lie
on the SML

12% . If every stock

is on the SML,
investors are being fully
Risk-free compensated for risk.
rate of
return
(6%)

0 1 Beta
Required SML
rate of If a security is above
return the SML, it is
underpriced.
12% .

Risk-free
rate of
return
(6%)

0 1 Beta
Required SML
rate of If a security is above
return the SML, it is
underpriced.
12% .
If a security is
below the SML, it
Risk-free is overpriced.
rate of
return
(6%)

0 Beta
1
Simple Return Calculations
Simple Return Calculations
$50 $60

t t+1
 Simple Return Calculations
$50 $60

t t+1

Pt+1 - Pt 60 - 50
= = 20%
Pt 50
 Simple Return Calculations
$50 $60

t t+1

Pt+1 - Pt 60 - 50
= = 20%
Pt 50

Pt+1 60
-1 = -1 = 20%
Pt 50
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00
Feb $63.80
Mar $59.00
Apr $62.00
May $64.50
Jun $69.00
Jul $69.00
Aug $75.00
Sep $82.50
Oct $73.00
Nov $80.00
Dec $86.00
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160
Feb $63.80
Mar $59.00
Apr $62.00
May $64.50
Jun $69.00
Jul $69.00
Aug $75.00
Sep $82.50
Oct $73.00
Nov $80.00
Dec $86.00
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160
Feb $63.80 0.100
Mar $59.00
Apr $62.00
May $64.50
Jun $69.00
Jul $69.00
Aug $75.00
Sep $82.50
Oct $73.00
Nov $80.00
Dec $86.00
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160
Feb $63.80 0.100
Mar $59.00 -0.075
Apr $62.00
May $64.50
Jun $69.00
Jul $69.00
Aug $75.00
Sep $82.50
Oct $73.00
Nov $80.00
Dec $86.00
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160
Feb $63.80 0.100
Mar $59.00 -0.075
Apr $62.00 0.051
May $64.50
Jun $69.00
Jul $69.00
Aug $75.00
Sep $82.50
Oct $73.00
Nov $80.00
Dec $86.00
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160
Feb $63.80 0.100
Mar $59.00 -0.075
Apr $62.00 0.051
May $64.50 0.040
Jun $69.00
Jul $69.00
Aug $75.00
Sep $82.50
Oct $73.00
Nov $80.00
Dec $86.00
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160
Feb $63.80 0.100
Mar $59.00 -0.075
Apr $62.00 0.051
May $64.50 0.040
Jun $69.00 0.070
Jul $69.00
Aug $75.00
Sep $82.50
Oct $73.00
Nov $80.00
Dec $86.00
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160
Feb $63.80 0.100
Mar $59.00 -0.075
Apr $62.00 0.051
May $64.50 0.040
Jun $69.00 0.070
Jul $69.00 0.000
Aug $75.00
Sep $82.50
Oct $73.00
Nov $80.00
Dec $86.00
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160
Feb $63.80 0.100
Mar $59.00 -0.075
Apr $62.00 0.051
May $64.50 0.040
Jun $69.00 0.070
Jul $69.00 0.000
Aug $75.00 0.087
Sep $82.50
Oct $73.00
Nov $80.00
Dec $86.00
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160
Feb $63.80 0.100
Mar $59.00 -0.075
Apr $62.00 0.051
May $64.50 0.040
Jun $69.00 0.070
Jul $69.00 0.000
Aug $75.00 0.087
Sep $82.50 0.100
Oct $73.00
Nov $80.00
Dec $86.00
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160
Feb $63.80 0.100
Mar $59.00 -0.075
Apr $62.00 0.051
May $64.50 0.040
Jun $69.00 0.070
Jul $69.00 0.000
Aug $75.00 0.087
Sep $82.50 0.100
Oct $73.00 -0.115
Nov $80.00
Dec $86.00
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160
Feb $63.80 0.100
Mar $59.00 -0.075
Apr $62.00 0.051
May $64.50 0.040
Jun $69.00 0.070
Jul $69.00 0.000
Aug $75.00 0.087
Sep $82.50 0.100
Oct $73.00 -0.115
Nov $80.00 0.096
Dec $86.00
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160
Feb $63.80 0.100
Mar $59.00 -0.075
Apr $62.00 0.051
May $64.50 0.040
Jun $69.00 0.070
Jul $69.00 0.000
Aug $75.00 0.087
Sep $82.50 0.100
Oct $73.00 -0.115
Nov $80.00 0.096
Dec $86.00 0.075
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160 0.049
Feb $63.80 0.100 0.049
Mar $59.00 -0.075 0.049
Apr $62.00 0.051 0.049
May $64.50 0.040 0.049
Jun $69.00 0.070 0.049
Jul $69.00 0.000 0.049
Aug $75.00 0.087 0.049
Sep $82.50 0.100 0.049
Oct $73.00 -0.115 0.049
Nov $80.00 0.096 0.049
Dec $86.00 0.075 0.049
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160 0.049 0.012321
Feb $63.80 0.100 0.049 0.002601
Mar $59.00 -0.075 0.049 0.015376
Apr $62.00 0.051 0.049 0.000004
May $64.50 0.040 0.049 0.000081
Jun $69.00 0.070 0.049 0.000441
Jul $69.00 0.000 0.049 0.002401
Aug $75.00 0.087 0.049 0.001444
Sep $82.50 0.100 0.049 0.002601
Oct $73.00 -0.115 0.049 0.028960
Nov $80.00 0.096 0.049 0.002090
Dec $86.00 0.075 0.049 0.000676
 (a) (b)
monthly expected
month price return return (a - b)2
Dec $50.00
Jan $58.00 0.160 0.049 0.012321
Feb $63.80 0.100 0.049 0.002601
Mar $59.00 -0.075 0.049 0.015376
Apr $62.00 0.051 0.049 0.000004
May $64.50 0.040 0.049 0.000081
Jun $69.00 0.070 0.049 0.000441
Jul $69.00 0.000 0.049 0.002401
Aug $75.00 0.087 0.049 0.001444
Sep $82.50 0.100 0.049 0.002601
Oct $73.00 -0.115 0.049 0.028960
Nov $80.00 0.096 0.049 0.002090
Dec $86.00 0.075 0.049 0.000676

St. Dev: sum, divide by (n-1), and take sq root: 0.0781