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 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 18.75% 2015 2016 2017 12.75% 22.50% 31.50% 2018 9.75% Stock return 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 return from 2014 to 2018 on HDS's stock to continue into the future, its coefficient of variation (CV) will be