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.Five years of realized returns for Falcon Freight Inc. (Falcon) are given in the following table: 20162017201820192020Stock return25.00%17.00%30.00%42.00%13.00% 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 . The preceding data series represents a sample of Falcon’s historical returns. Based on this conclusion, the standard deviation of Falcon’s historical returns is . If investors expect the average realized return on Falcon Freight Inc.’s stock from 2016 to 2020 to continue into the future, its expected coefficient of variation (CV) is expected to equal .

Given: Year Stock Return 2016 25.00% 2017 17.00% 2018 30.00% 2019 42.00% 2020 13.00%

Answered: Returns earned over a given time period…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 18PROB

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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.

Five years of realized returns for Falcon Freight Inc. (Falcon) are given in the following table:

	2016	2017	2018	2019	2020
Stock return	25.00%	17.00%	30.00%	42.00%	13.00%

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 .

The preceding data series represents a sample of Falcon’s historical returns. Based on this conclusion, the standard deviation of Falcon’s historical returns is .

If investors expect the average realized return on Falcon Freight Inc.’s stock from 2016 to 2020 to continue into the future, its expected coefficient of variation (CV) is expected to equal .

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