4. Measuring standalone risk using realized dataReturns 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.Five years of realized returns for Falcon Freight Inc. (Falcon) are given in the following table:20162017201820192020Stock return 10.00% 6.80% 12.00% 16.80% 5.20%Also note that:1. While Falcon was started 40 years ago, its common stock has been publicly traded for the past 25 years.2. The returns on Falcon's equity are calculated as arithmetic returns.Given this return data, the average realized return on Falcon Freight Inc.'s stock is 10.16%The preceding data series represents a sample of Falcon's historical returns. Based on this conclusion, the standard deviation of Falcon's historicalreturns isIf investors expect the average realized return on Falcon Freight Inc.'s stock from 2016 to 2020 to continue into the future, its expected coefficient ofvariation (CV) is expected to equal

Data given Year (n) Return % (X) 2016 10.00 2017 6.80 2018 12.00 2019 16.80 2020 5.20…

Answered: Returns earned over a given time period…

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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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 17.50% 11.90% 21.00% 29.40% 9.10% 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…
You have collected the following information regarding Impi Industrial Corporation’s historical earnings per share 2012 R 12.36 2013 R 13.60 2014 R15.82 2015 R 17.80 2016 R 20.90 2017 R21. 78 Based on your analysis of Impi’s fundamentals you estimate that the firm’s earnings will continue to grow at its average historical growth rate for the next year but that in the following year, as a result of the launch of a new product the firm is currently developing, earnings will grow at a rate of 20% per year for two years. After this, you project that the earnings growth rate will decrease by 5% per year for the next two years, to its long-term sustainable rate. You project that the firm will maintain a 50% dividend pay-out ratio and that the appropriate market capitalisation rate for Impi Industrial Corporation is 15%. What action would you take if the…
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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 Celestial Crane Cosmetics Inc. (CCC): 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 2014 to 2018 are: Stock return 2014 2015 2016 2017 5.00% 3.40% 6.00% 8.40% 2018 2.60% Given the preceding data, the average realized return on CCC's stock is The preceding data series represents historical returns is of CCC's hist If investors expect the average realized return from 2014 to 2018 on C 15.75% 10.16% 5.08% 12.70% ns. Based on this conclusion, the standard deviation of CCC's o continue into the…
Given the following information for the stock of Foster Company, calculate the risk premium on its common stock. Current price per share of common stock $37.01 Expected dividend per share next year $1.39 Constant annual dividend growth rate 8.4% Risk-free rate of return 5.2%
If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company over the past four years: Year 1 Year 2 Year 3 Year 4 High price $ 98.70 $ $ $131.70 Low price 73.53 EPS 122.30 89.64 148.33 70.32 116.85 7.98 9.73 10.81 12.20 Earnings are projected to grow at 5 percent over the next year. a. What is your high target stock price over the next year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is your low target stock price over the next year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. High target stock price b. Low target stock price 4
Suppose you purchased Spotlight Co.'s stock on Nov 1, 2015 and held it for one year, selling on Oct 31, 2016. What was your annual realized return? Price Dividend Date Nov 01 15 Feb 15 16 Aug 15 16 Oct 31 16 30 28 27 29 55 1.5 0.5
Example: Stock Valuation Consider the following information for the company Fledgling Electronics: Expected earnings per share at the end of year $8.33 Expected dividend per share at the end of year $5 Market capitalization rate (r) 15% Expected growth rate dividends (per year) 10% 1. Calculate the current price per share of Fledgling Electronics 2. Calculate the capitalized value of Fledgling's EPS if it had a no growth policy 3. Calculate the present value of Fledgling's growth opportunities
The analysis of risk and the search for yield in companies is determinant for financial success. In this case, consider the stock price and dividends of the companies Power Electric Industries, Riviera Power Inc. and Nature Energy Corp. for the period from 2014 to 2019. Power Electric Industries Power Electric Industries Riviera Power Inc. Riviera Power Inc. Nature Energy Corp. Nature Energy Corp. year Year Stock price Dividends Year Stock price Dividends Year Stock price Dividends 2019 $18.5 $1.50 $38.5 $4.50 $58.5 $3.50 2018 $15.93 $1.10 $40.93 $3.10 $50.93 $2.10 2017 $10.20 $1.00 $43.20 $3.00 $53.20 $3.00 2016 $9.80 $0.90 $50.80 $2.90 $50.80 $2.90 2015 $8.50 $0.85 $48.50 $2.85 $48.50 $2.75 2014 $8.00 $0.80 $45.00 $2.80 $45.00 $2.60 1. Consider the companies' data to calculate annual rates of return. Determine the average return for each figure over the 5-year period. (You…
Given the following possible returns (dividends plus capital gains) over the coming year from P100,000 investment in General Motors common stock: State of Economy Profitability ReturnRecession 0.20 P-1,000 Normal year 0.60 1,500Boom 0.20 2,500What is the standard deviation of returns?
One of the most important components of stock valuation is a firm's estimated growth rate. Financial statements provide the information needed to estimate the growth rate. Consider this case: Robert Gillman, an equity research analyst at Gillman Advisors, believes in efficient markets. He has been following the mining industry for the past 10 years and needs to determine the constant-growth rate that he should use while valuing Pan Asia Mining Co. Robert has the following information available: Pan Asia Mining Co's stock (Ticker: PAMC) is trading at $15.00 The company's stock is expected to pay a year-end dividend of $0.72 that is expected to grow at a certain rate. The stock's expected rate of return is 7.20% Based on the information just given, what will be Robert's forecast of PAMC's growth rate? 3.60% 2.40% 7.15% 1.99% Which of the following statements accurately describes the relationship between earnings and dividends when all other factors are held constant? Dividend growth and…
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