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 returns on its equity are calculated as arithmetic returns.3.The historical returns for FF for 2014 to 2018 are: 20142015201620172018Stock return25.00%17.00%30.00%42.00%13.00% Given the preceding data, the average realized return on FF’s stock is (63.50%, 25.40%, 50.80%, 78.74%) . The preceding data series represents (the population, a sample, the universe) of FF’s historical returns. Based on this conclusion, the standard deviation of FF’s historical returns is (11.41%, 15.41%, 8.79%, 10.21%). 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 (0.83, 0.45, 0.52, 0.38) .

Coefficient of Variation: It is the measure of statistics showing the variation in the data points…

Answered: Given the preceding data, the average…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 17P

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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 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 returns on its equity are calculated as arithmetic returns.
3.	The historical returns for FF for 2014 to 2018 are:

	2014	2015	2016	2017	2018
Stock return	25.00%	17.00%	30.00%	42.00%	13.00%

Given the preceding data, the average realized return on FF’s stock is (63.50%, 25.40%, 50.80%, 78.74%) .

The preceding data series represents (the population, a sample, the universe) of FF’s historical returns. Based on this conclusion, the standard deviation of FF’s historical returns is (11.41%, 15.41%, 8.79%, 10.21%).

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 (0.83, 0.45, 0.52, 0.38) .

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