3. 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 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 2014 to 2018 are: 2014 2015 2016 2017 2018 Stock return 6.25% 4.25% 7.50% 10.50% 3.25% Given the preceding data, the average realized return on BLM's stock is The preceding data series represents historical returns is of BLM's historical returns. Based on this conclusion, the standard deviation of BLM's If investors expect the average realized return from 2014 to 2018 on BLM's stock to continue into the future, its coefficient of variation (CV) will be
3. 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 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 2014 to 2018 are: 2014 2015 2016 2017 2018 Stock return 6.25% 4.25% 7.50% 10.50% 3.25% Given the preceding data, the average realized return on BLM's stock is The preceding data series represents historical returns is of BLM's historical returns. Based on this conclusion, the standard deviation of BLM's If investors expect the average realized return from 2014 to 2018 on BLM's stock to continue into the future, its coefficient of variation (CV) will be
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:3. 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 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 2014 to 2018 are:
2014
2015 2016
2017
2018
Stock return 6.25% 4.25% 7.50% 10.50% 3.25%
Given the preceding data, the average realized return on BLM's stock is
The preceding data series represents
historical returns is
of BLM's historical returns. Based on this conclusion, the standard deviation of BLM's
If investors expect the average realized return from 2014 to 2018 on BLM's stock to continue into the future, its coefficient of variation (CV) will be
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