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5. The probabilistic approach to calculate expected returns tnvestors are willing to make investments because they expect a return from doing so. As the name

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5. The probabilistic approach to calculate expected returns tnvestors are willing to make investments because they expect a return from doing so. As the name suggests, expected returns are not assured. Because they occur in the future, expected returns cannot be observed either, so stock analysts substitute historical realized returns in their mathematical analyses. Realized return is the name for returns that have actually been earned. Many analysts use past realized returns to both predict future performance and to estimate the riskiness of the asset. Realized returns on Golden Fish Foodstuffs, Inc, are given in the following table: The average realized return on Golden Fish Foodstuffs, Inci's stock from 2013 to 2017 was Based on economic conditions, you compiled the following information with estimates of returns from Golden Fish foodstuits, Incis stock and the probabilities associated with the economic condition for the next year: Using this information, calculate the standard deviation of returns from Golfen Hish foodstuffs, Incis stock. 3.85% The average realized return on Golden Fish Foodstuffs, Inc.'s stock from 2013 to 2017 was Based on economic conditions, you compiled the following information with estimates of returns from Golden Fish Foodstuffs, Inci's stock and the probabilities associated with the economic condition for the next year: Using this information, calculate the standard deviation of returns from Golden fish foodstuffs, Incis stock. 3.85% 219.00% 27.48% 14.80% Analysts and finance professionals often use the historical standard deviation to cakulate estimates of the future variablity. An important oisdaimer in their analysis, however, always states that past performance is not a guarantee of future results. Thus, it is important to understand that the average reahised rate of return (r) should not be used as the expected rate of return ( r~)

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