Q N Massanes se realized stock us to est the a Consider the case of Happy Dog Seap Inc. s Tive years of reared return for HDS are given the gender They ca 3. The area 2 The M S E suppoutu X command 100 NETT NEKE NEW MUST NEETT HA mapp W E D 4 C 2004 2 3015 2016 2017 2010 AL SORULAR DE SERV 127 R F $ V I G MacBook Pro 9 B Y 4 H n N 8 L 1 M y pangani sa 1 6 K O 0 L command P A 0 Amunt aduera given time period are called read natural data re Alys companies use eated stock runs textmate the risk of 1. WHOS yra picy traded for the par 2 they ca The r 2004 in 2014 2015 2014 2017 ak W S PE ommand Na zane knnen 3 X VIDE SIETE NOCNE sesi be NIY per and st ning IN LOGAN 2 Ah E D S www. 4 C Malzed return fars, 2004 201 R F N 5 V T G 6 s MacBook Pro B Y H 4 N U J : M 61 K innt to state re O option ( n t ? 1 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 2015 2016 2017 2018 Stock return 23.75% 16.15% 28.50% 39.90% 12.35% 0.52e preceding data, the average realized return on HDS's stock is eding data series represents 0.38 0.45 returns is of HDS's historical returns. Based on this conclusion, the standard deviation of HDS's 0.83 brs 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 Grade It Now Save & Continue Continue without saving 16 tv N A (@ Risk and Rates of Return Assign Back to Assignment Attempts Keep the Highest/2 2. Statistical measures of standalone risk Remember, the expected value of a probability distribution is a statistical measure of the average (mean) value expected to occur during all possible circumstances. To compute an asset's expected return under a range of possible circumstances (or states of nature), multiply the anticipated return expected to result during each state of nature by its probability of occurrence. Consider the following case: Juan owns a two-stock portfolio that invests in Celestial Crane Cosmetics Company (CCC) and Lumbering Ox Truckmakers (LOT). Three- quarters of Juan's portfolio value consists of CCC's shares, and the balance consists of LOT's shares. Each stock's expected return for the next year will depend on forecasted market conditions. The expected returns from the stocks in different market conditions are detailed in the following table: Market Condition Probability of Occurrence Celestial Crane Cosmetics Lumbering Ox Truckmakers 0.25 37.5% 52.5% Strong Normal 0.45 22.5% 30% Weak 0.30 -30% -37.5% Calculate expected returns for the individual stocks in Juan's portfolio as well as the expected rate of return of the entire portfolio over the three 18 tv S A Calculate expected returns for the individual stocks in Juan's portfolio as well as the expected rate of return of the entire portfolio over the three possible market conditions next year. The expected rate of return on Celestial Crane Cosmetics's stock over the next year is The expected rate of return on Lumbering Ox Truckmakers's stock over the next year is . 14.19% The expected rate of return on Juan's portfolio over the next year is 12.61% 8.93% The expected returns for Juan's portfolio were calculated based on three possible conditio and for each condition there will be a specific outcome. These probabilities and outcomes distribution graph. harket. Such conditions will vary from time to time resented in the form of a continuous probability 10.51% For example, the continuous probability distributions of rates of return on stocks for two different companies are shown on the following graph: PROBABILITY DENSITY Company A A 20 Company B 60 40 Desti 18 MacBook Pro possible market conditions next year. The expected rate of return on Celestial Crane Cosmetics's stock over the next year is The expected rate of return on Lumbering Ox Truckmakers's stock over the next year is The expected rate of return on Juan's portfolio over the next year is 17.38% The expected returns for Juan's portfolio were calculated based on three possible conditions 10.00% rket. Such conditions will vary from time to time, and for each condition there will be a specific outcome. These probabilities and outcomes c distribution graph. esented in the form of a continuous probability 19.07% 15.38% For example, the continuous probability distributions of rates of return on stocks for two di panies are shown on the following graph: PROBABILITY DENSITY Company A tv N A 0 20 Company B 40 18 MacBook Pro The expected rate of return on Celestial Crane Cosmetics's stock over the next year is The expected rate of return on Lumbering Ox Truckmakers's stock over the next year is The expected rate of return on Juan's portfolio over the next year is The expected returns for Juan's portfolio were calculated based on thre 15.84% conditions in the market. Such conditions will vary from time to time, and for each condition there will be a specific outcome. These probabili 11.73% comes can be represented in the form of a continuous probability distribution graph. 9.97% For example, the continuous probability distributions of rates of return or two different companies are shown on the following graph: 14.08% PROBABILITY DENSITY Company A tv S A 20 BALAD Company B 18 60 PROBABILITY DENSITY 9 Company B -20 20 40 60 RATE OF RETURN [Percent) Based on the graph's information, which of the following statements is true? Company A has a smaller standard deviation. Company B has a smaller standard deviation. AN 18 -40 Company A 0 Moon tv Grade It No