 In this section, I will tell you how to calculate the values of standard deviation of the expected rate of return and for that purpose, I will be using an example in which we will learn how to calculate the standard deviation of the expected rate of return for two different stocks. So, I have the data for two stocks called the RISCO and the GENCO. We have given the hypothetical name of two stocks. One is called RISCO and the other is called GENCO. We have given the three possible situations of the economy, i.e., strong, normal and weak. What will be the expected returns of GENCO and the expected returns of RISCO? In the last column, we have written the possibilities, chances and probabilities of these data. With the help of this data, we will calculate the standard deviation of RISCO, returns and returns of GENCO. We will use the formula in which we need three things. The first thing we need is the expected returns. Second, we need to remove its mean. Third thing, we need the probabilities and we will use these three things which we do not have here. So, we will use these three things in the formula and calculate the value of the standard deviation. I have already told you that the standard deviation is an indicator of RISCO. So, the value of the standard deviation will be higher for the particular stock. This means that it is more risky and for the particular financial instrument or stock, the value of the standard deviation and the expected rate of return will be less. We have got the data, we are going to find out the mean and then plug these values into this formula where you need the value of the mean and the returns. After that, you need the corresponding probability. First of all, you can see the mean of RISCO. We have calculated it and that is 0.1. You have got the returns in good and bad situations. You have accounted for them. That is 0.5. After subtracting the mean from 0.5, you have to square it. You can see we have squared it here. After square it, you will multiply it with the probability. So, you can see that we have multiplied it with the corresponding probability. You have got the values of the three states. You have to do this with the three states. After adding these three states, you have to take the square root. So, you will get the standard deviation value. So, by plugging the values, we have calculated the value of the standard deviation for the RISCO stock returns and that turned out to be, according to this example, it turned out to be 25.3%. In 30 minutes, I will teach you to calculate on Excel. So, you will have an idea how actually you are going to do it. So, this is 25.30 for RISCO stock returns. Similarly, I have taken the given data and plugged it into this formula. After that, we have calculated the standard deviation for the Genco stock. So, we have got the value of 12.65. So, now it is important to learn what do we mean by these two numbers. For the RISCO stock, the data that came out, we have calculated the standard deviation value with the help of that. That was 25.3%. And for the Genco stock, the standard deviation value has come out to be 12.65%. So, as I told you earlier, the smaller the value of the standard deviation, the lower the level of RISCO represents. Similarly, here you can see that since the RISCO stock returns has come to 25.3%, this means that the RISCO stock returns has more risk or more risk involved in this as compared to Genco stock. And the standard deviation of Genco stock is very less than the standard deviation of RISCO stock, which is 12.65%. So, you can see that there is a big difference between the two numbers and these two numbers are indicating the level of risk linked up with these two stocks. So, the investors or the financial analysts can see that the stock with which the high risk is involved or the low risk stock is involved. So, accordingly, if you are a risk-awarder or a risk-lover, you can decide about your investment according to that. The next thing I am moving on to is the Excel file. So, I will be telling you that on Excel, you can do this work very quickly and easily. And to illustrate this particular thing here, Genco stock data, rate of return, I am using the probability. So, what I have done is, this data is present in front of you. You can see the rate of return on Genco. I have taken 10, minus 10, 10% and 30%. Its probabilities were given, 0.2, 0.6, 0.2. And what did I do with the help of these two? First of all, I took out the mean. And how will the mean come out? You have to multiply the rate of return with probability. That is, R multiplied by probability of R. And you have to multiply and take out the values. If you take out the values, then you have to collect them. And the sum that will give you the value of mean, expected value of rate of return on Genco stock. This is 0.1. Now, you have to use this value. What to do? Standard deviation on Genco returns to calculate. And for that, what will we do? Simply, you have to take every return, like minus 10. You have to subtract it from the value of mean. This is the formula written in front of you. R minus E R. So, first of all, you have to take the return. You have to subtract it from its mean. After subtracting, that 10% of the mean, minus 10%, minus 10% will give you minus 20%. Fine, this 20% came from here. Because I have converted it to 0.1 by multiplying it by 100. Because the data I had was in percentage form. So, keep this in mind. If the data is in percentage form, then you have to take the mean in percentage form. If you have it in decimal form, then you have to take the mean in 0.1. So, what happened now? We did minus 10% from 10%. I have written the value of R minus E R. So, you have minus 20%, then you subtracted plus 10, minus 10%, then you have 0%, then you have 30%, minus 10%, then you have 0%. This is your R minus expected value of R. Now, you have to square it. After square it, you will multiply it with these probabilities. So, what have we done? We have squared R minus E R. I have got these values. I have multiplied these with corresponding probabilities. When I have collected these, that is 0.016. And what is the value of these? This gives you the variance of the expected rate of return on Genco stock. Now, I want standard deviation. So, what do we have to do to get it? Take the square root of variance. What have I done? I have written the value of variance, 0.016. And I have taken the square root. After taking the square root, I have got the value of 0.1265. And what is this saying? This is saying that the standard deviation of Genco is 0.1265. If I have to convert it in percentage, then simply I would multiply this number by 100. And I will get 12.65% as the value of standard deviation. So, just a while ago, I had shown you an example. If we calculate the value in the formula with the help of a calculator, then there was also 12.65%. Now, you can try this activity on your own. You can put the numbers of the risk in the excel file. You can use these formulas and calculate them with your hands. You have taken the expected rate of return. Then you have taken the variance, then you have taken the square root. You have taken the value of standard deviation. What is the value of the standard deviation? You already know the answer. So, you can tell your answer with that number to see that this is important to learn. That you have to calculate the mean or standard deviation of the expected rate of returns through excel. You have to learn it. It will be easier for you to calculate it for your future use. And this is how we use. We calculate these two things. We calculate these two things. Two very important things about the expected rate of return. And I have also told you that how do we interpret these numbers. In numbers, how do we interpret them? What does this mean from a financial perspective? And how can we calculate it with the help of excel, with the help of our hands, with the help of a calculator?