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Question

servlet/quiz2quiz action-takeQuiz&iquiz; probGuid-ONAPCOA801010000004194edb0050000&ctx-F; 2. Measuring stand-alone risk using realized data Aa A Returns earned over a given time period are called realized returns. Historical data on realized returns is often to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock. Consider the case of Blue Llama Mining Inc. (BLM): Five years of realized returns for BLM are given in the following table. Remember: 1. While BLM was started 40 years ago, its common stock has been publicly traded for the past 25 years. 2. The returns on its equity are calculated as arithmetic returns. 3. The historical returns for BLM for 2012 to 2015 are: 2012 2013 2014 2015 2016 Stock return13.75% 9.35% 16.50% 23.10% 7.15% : Given the preceding data, the average realized return on BLM's stock is of BLM's historical returns. Based on this conclusion, the The preceding data series represents standard devlation of BLM's historical returns is If investors expect the average realized return from 2012 to 2016 on BLM's stock to continue into the future, ts coefficient of variation (CV) will be

Explanation / Answer

Soln : The average realized return = (13.75+ 9.35 + 16.50 + 23.10 + 7.15)/5 = 13.97%

The Preceding data series represents realized returns of BLM's realized returns.

For standard deviation, please refer the table:

Mean = 13.97%, standard deviation = (sum of y^2/n)0.5= 5.615

Now, coefficient of variation can be calculated using this formula : CV = Standard deviation/mean * 100

CV = (5.615/13.97)*100 = 40.19

Returns (X) y = Mean- X y^2 13.75 0.22 0.0484 9.35 4.62 21.3444 16.5 -2.53 6.4009 23.1 -9.13 83.3569 7.15 6.82 46.5124

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