Find the variance for a security that has three one-year returns of 5%

Find the variance for a security that has three one-year returns of 5%, 10%, and 15%.

A) 10.00%
B) 16.67%
C) 25.00%
D) 30.00%

ANSWER

Answer: C
Explanation: C) Average return = Σrt/n = (5% + 10% + 15%)/3 = 10%
Variance(r) = Σ (ri – average)2 / (n – 1)
= Σ[(5% – 10%)2 + (10% – 10%)2 + (15% – 10%)2]/(3 – 1) = 25%