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ID: 2807149 • Letter: B
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Bookmarks People Window Help quiz?quiz uiz-probGuid-QNAPC0A801 01 0000003e43f320050000&ctebrown; 1-0012&ck;=n.15 1 3815 2. Measuring standalone risk using realized data A Aa 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. Consider the case of Falcon Freight Inc. (FF): Five years of realized returns for FF are given in the following table. Remember 1. While FF 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 FF for 2012 to 2015 are: 20122013 2014 20152016 Stock return 23.75% 16.15% 28.50% 39.90% 12.35% Given the preceding data, the average realized return on FF's stock is The preceding data series represents standard deviation of FF's historical returns is of FF's historical returns. Based on this conclusion, the f Investors expect the average realized return from 2012 to 2016 on FF's stock to continue into the future, its coeffident of variation (CV) will be gbExplanation / Answer
year
return
return-average return
square of (return-average return)
2012
23.75
-0.38
0.1444
2013
16.15
-7.98
63.6804
2014
28.5
4.37
19.0969
2015
39.9
15.77
248.6929
2016
12.35
-11.78
138.7684
Average return = sum of return/no of years
24.13
sum of square*(return-average return)
470.383
sum of return
120.65
standard deviation = square root of sum of square of(return-average return)/n
square root of (470.383/5)
9.70
no of years
5
Average return
24.13
standard deviation
9.70
co-efficient of variance = (standard deviation/mean)*100
(9.70/24.13)*100
40.20
1-
24.13
2-
average
3-
9.70
4-
40.20
year
return
return-average return
square of (return-average return)
2012
23.75
-0.38
0.1444
2013
16.15
-7.98
63.6804
2014
28.5
4.37
19.0969
2015
39.9
15.77
248.6929
2016
12.35
-11.78
138.7684
Average return = sum of return/no of years
24.13
sum of square*(return-average return)
470.383
sum of return
120.65
standard deviation = square root of sum of square of(return-average return)/n
square root of (470.383/5)
9.70
no of years
5
Average return
24.13
standard deviation
9.70
co-efficient of variance = (standard deviation/mean)*100
(9.70/24.13)*100
40.20
1-
24.13
2-
average
3-
9.70
4-
40.20
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