QUESTION TWO

Sarah is searching for shares to include in her current share portfolio. She is interested in Avengers Ltd shares; she has been impressed with the companys computer products and believes it is an innovative market player. However, Sarah realises that any time she considers a so-called Avengers share, risk is a major concern. The rule she follows is to include only securities with a coefficient of variation of returns below 0.60.

Sarah has obtained the following price information for the period from 2017 to 2021. Avengers Ltd, being growth-oriented, did not pay any dividends during these four years.

	Avengers Ltd Share Price
Year	Beginning	End
2017 - 2018	$19.36	$22.55
2018 - 2019	22.55	36.78
2019 - 2020	36.78	60.38
2020 - 2021	60.38	83.80

REQUIRED:

1. Calculate the rate of return each year, from 2017 to 2021, for Avengers Ltd.
2. Assume that each years return is equally probable and calculate the average return over this period.
3. Calculate the standard deviation of returns over the past four years and interpret the result.
4. Based on parts b and c, determine the coefficient of variation of returns for the security. Considering this information about what should be Sarahs decision regarding the inclusion of Avengers Ltd in her portfolio.( Refer to Appendix 4 for formulas)

(2 + 2 + 3 + 2 = 9 marks)