Question

How do you calculate Expected return on common stock - I have a data set for a period of 5 years with the common stock historical returns.

Answer 1

There are a variety of approaches you can take when evaluating the expected returns of a common stock (using historical returns is one approach). First and foremost, you want to make sure that your dataset takes into account not only changes in the stock's price but also all cash flows received over said time horizon (think: dividends). Do you have that?