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
Problem 1PS
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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 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 |
| 3. | The historical returns for FF for 2014 to 2018 are: |
|
|
2014
|
2015
|
2016
|
2017
|
2018
|
|---|---|---|---|---|---|
| Stock return | 8.75% | 5.95% | 10.50% | 14.70% | 4.55% |
A. Given the preceding data, the average realized return on FF’s stock is .
B. The preceding data series represents of FF’s historical returns. Based on this conclusion, the standard deviation of FF’s historical returns is .
C. If investors expect the average realized return from 2014 to 2018 on FF’s stock to continue into the future, its coefficient of variation (CV) will be .
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