P89

Rate of return, standard deviation, and coefficient of variation Mike is searching

for a stock to include in his current stock portfolio. He is interested in Hi-Tech,

Inc.; he has been impressed with the companys computer products and believes

that Hi-Tech is an innovative market player. However, Mike realizes that any

time you consider a technology stock, risk is a major concern. The rule he follows

is to include only securities with a coefficient of variation of returns below 0.90.

Mike has obtained the following price information for the period 2012 through

2015. Hi-Tech stock, being growth-oriented, did not pay any dividends during these

4 years.

Stock price

Year

Beginning

End

2012

$14.36

$21.55

2013

21.55

64.78

2014

64.78

72.38

2015

72.38

91.80

a. Calculate the rate of return for each year, 2012 through 2015, for Hi-Tech stock.

b. Assume that each years return is equally probable, and calculate the average re

turn

over this time period.

c. Calculate the standard deviation of returns over the past 4 years. (Hint: Treat

these data as a sample.)

d. Based on b and c, determine the coefficient of variation of returns for the security.

e. Given the calculation in d, what should be Mikes decision regarding the inclu

sion

of Hi-Tech stock in his portfolio?

***Please answer parts A thru E and please respond with formulas in excel and show results in excel as well please! Thank you!***