Reading 7: Statistical Concepts and Market Returns - LOS f

following, industry, clothing, standard, returns

Q1. Assume that the following returns are a sample of annual returns for firms in the clothing industry. Given the following sample of returns, what are the sample variance and standard deviation respectively?

Firm 1 Firm 2 Firm 3 Firm 4 Firm 5

15% 2% 5% (7%) 0%

A) 64.5; 8.0.

B) 51.6; 7.2.

C) 32.4; 5.7.

Q2. Claude Bellow, CFA, is an analyst with a real-estate focused investment firm. Today, one of the partners e-mails Bellow the following table and requests that he “run some numbers.” The table below gives five years of annual returns for Marley REIT (real estate investment trust) and a large urban apartment building. Marley REIT invests in commercial properties. (Note: For this question, calculate the mean returns using the arithmetic mean.)

Table 1: Annual returns (in %)

Asset Year 1 Year 2 Year 3 Year 4 Year 5

Marley REIT 15.0 8.0 13.0 9.0 13.0

Apartment Bldg 10.0 -1.0 8.0 8.0 9.0

One of the office assistants begins to “run some numbers,” but is then called away to an important meeting. So far, the assistant calculated the variance of the apartment building returns at 15.76%. (He assumed that the returns given represent the entire population of returns.) Now, Bellow must finish the work.

Bellow should conclude that the standard deviation of the:

A) apartment building, if the given returns represent a sample of returns, is 19.70%.

B) apartment building, if the given returns represent a sample of returns, is 4.44%.

C) REIT, assuming the given returns represent the entire population, is 2.97%.

Q3. What is the respective arithmetic mean return and the geometric mean return for ABC Mutual Fund for the period 1991-2000?

A) 7.2%; 6.8%.

B) 8.2%; 6.8%.

C) 7.2%; 5.6%.