
Average Returns:
Average return is the simple mathematical average of a series of returns that has been generated over a particular time period. The average return can be computed similarly like a simple average for a definite set of numbers. The two common return measures are
To determine: The types of investments that have had the highest average returns and have been the most volatile from year to year.

Answer to Problem 1CC
The small stock has the highest average
Yearly Average Returns | |||
Year | Sensex | BSE 100 | Small Cap |
2003 − 2004 | 6.259178 | 0.29104439 | 0.351887811 |
2004 − 2005 | 6.056228 | 0.07470713 | 0.294252967 |
2005 − 2006 | 0.221075 | 0.21542737 | 0.236645801 |
2006 − 2007 | 0.078817 | 0.06110379 | 0.007770751 |
Mean | 0.153825 | 0.1605707 | 0.222639332 |
Standard deviation | 0.101281 | 0.1115031 | 0.15077397 |
Return : Risk | 1.52 : 1 | 1.44 : 1 | 1.47 : 1 |
The above table shows the risk and relationship of small stocks. It can be concluded that all small stocks can generate high rate of return with high risk or volatility.
Explanation of Solution
Hence, small types of investments that have the highest average returns and are the most volatile from year to year.
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Chapter 11 Solutions
EBK FUNDAMENTALS OF CORPORATE FINANCE
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