Question

Measuring stand-alone risk using realized (historical) data

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 Happy Dog Soap Inc. (HDS):

Five years of realized returns for HDS are given in the following table. Remember:

1.	While HDS 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 HDS for 2014 to 2018 are:

	2014	2015	2016	2017	2018
Stock return	7.50%	5.10%	9.00%	12.60%	3.90%

Given the preceding data, the average realized return on HDS’s stock is __________ .

The preceding data series represents ____________of HDS’s historical returns. Based on this conclusion, the standard deviation of HDS’s historical returns is ___________ .

If investors expect the average realized return from 2014 to 2018 on HDS’s stock to continue into the future, its coefficient of variation (CV) will be ______________.

Answer 1

solution Civen data 20(7208 2015 2016 teck Jtn 56.t0 q.00112 663 90 HOs'S 30ali2e etuin on e inahe aveage Steck .Hele te bcke fina mean. 3-90 (.50 S-l6 + 00+ 12:60 + 38 5 7-62 Given he pe cedng dada,he averge enlized Hos's Stock C マ-62. deviation tele ue have 4o find stendana

-62)* (5-10- 3-629+ (a-6 (12-6- 62 3-9-3632 51 (1-9ouu)2u.80e) (0.0144t6-35) 4 3 431 the Paece&ng dda series gepde sentis a samPle Bobed o os'sbistonial Netarn. his Conccs sion he stendard devici on dls Hos's histanic al 3. 3 tele e ha fina he coebbicient o Naicetion dtuala

3-43.A 62 CV fb investar s Epect 4he avonge tealized aetuin fSom Qolu to 201% on Hos's stock to Contnue into 4he fcdene 's coebbicient eVaniation Ccy) wt be ouSo13 (a