Returns earned over a given time period are called realized returns. Historical

Question

Returns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock. Five years of realized returns for Falcon Freight (FF) Inc. are given in the following table. Remember: While FF was started 40 years ago, its common stock has been publicly traded for the past 25 years. The returns on its equity are calculated as arithmetic returns. Given the preceding data, the average realized return on FF's stock is The preceding data series represents of FF's historical returns. Based on this conclusion, the standard deviation of FF's historical returns is If investors expect the average realized return on FF's stock from 2011 to 2015 to continue into the future, what will be its coefficient of variation (CV)? 0.52 0.83 0.45 0.38

Explanation / Answer

Average realized return on FF's Stock = 8.75 + 5.95 + 10.50 + 14.70 + 4.55 / 5

= 44.45 / 5

= 8.89 %.

Standard deviation of FF's historical returns:-

Standard Deviation = Under root of 63.847 / 5

= Under root of 12.7694

= 3.57 % (approx)

Coefficient of Variation = Standard deviation / mean

= 3.57 / 8.89

= 0.40 (approx)

The answer most nearest to 0.40 is 0.38 (Option 4).

Accordingly, The coeffcient of variation (CV) is 0.38 (Option 4).

Returns Returns - Average Return (Returns - Average Return)2 8.75 8.75 - 8.89 = (-) 0.14 0.0196 5.95 5.95 - 8.89 = (-) 2.94 8.6436 10.50 10.50 - 8.89 = 1.61 2.5921 14.70 14.70 - 8.89 = 5.81 33.7561 4.55 4.55 - 8.89 = (-) 4.34 18.8356 Total 63.847

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.