Question

Five years of realized returns for CCC are given in the following table. Remember: 1. While CCC 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 CCC for 2012 to 2016 are: 2012 2013 2014 2015 2016 Stock return 15.00% 10.20% 18.00% 25.20% 7.80% Given the preceding data, the average realized return on CCC's stock is The preceding data series represents standard deviation of CCC's historical returns is of CCC's historical returns. Based on this condusion, the If investors expect the average realized return from 2012 to 2016 on CCC's stock to continue into the future, its coefficient of variation (CV) will be

Answer 1

1)

Average return = (0.15 + 0.102 + 0.18 + 0.252 + 0.078) / 5

Average return = 0.1524 or 15.24%

2)

Sample

3)

Standard deviation = {[(0.15 - 0.1524)² + (0.102 - 0.1524)² + (0.18 - 0.1524)² + (0.252 - 0.1524)² + (0.078 - 0.1524)²]/5 - 1}^1/2

Standard deviation = {[0.000006 + 0.00254 + 0.000762 + 0.00992 + 0.005535] / 4}^1/2

Standard deviation = {0.004691}^1/2

Standard deviation = 0.0685 or 6.85%

3)

Coeffficient of variation = Standard deviation / mean

Coeffficient of variation = 0.0685 / 0.1524

Coeffficient of variation = 0.45