9-14 Risk and diversification Deviation from Squared Y ear Rate of return Average return Deviation 1994 1.31 -23.44 54943 1995 37.43 1268 160.78 1996 23.07 1.6 2.82 1997 33.36 8.61 74.13 1998 25.58 3.83 14.67 Total 123.75 801.84 Average rate of return=123. 75/5=24.75 Variance average of squared deviations=801.84/5=160.37 Standard deviation=squared root of variance=12.66% Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001©The McGraw-Hill Companies, Inc.,2001 9- 14 Irwin/McGraw-Hill Risk and Diversification Deviation from Squared Year Rate of Return Average Return Deviation 1994 1.31 -23.44 549.43 1995 37.43 12.68 160.78 1996 23.07 -1.6 2.82 1997 33.36 8.61 74.13 1998 25.58 3.83 14.67 Total 123.75 801.84 Average rate of return = 123.75/5 = 24.75 Variance = average of squared deviations = 801.84/5=160.37 Standard deviation = squared root of variance = 12.66%