Question

Measuring standalone risk using realized 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.

Five years of realized returns for Happy Dog Soap Inc. (Happy Dog) are given in the following table:

	2012	2013	2014	2015	2016
Stock return	21.25%	14.45%	25.50%	35.70%	11.05%

Also note that:

1.	While Happy Dog was started 40 years ago, its common stock has been publicly traded for the past 25 years.
2.	The returns on Happy Dog's equity are calculated as arithmetic returns.

Given this return data, the average realized return on Happy Dog Soap Inc.’s stock is ___?___ .

The preceding data series represents ___?___ of Happy Dog’s historical returns. Based on this conclusion, the standard deviation of Happy Dog’s historical returns is __?___ .

If investors expect the average realized return on Happy Dog Soap Inc.’s stock from 2012 to 2016 to continue into the future, its expected coefficient of variation (CV) is expected to equal ___?____ .

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Hope it will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.