Question
Rate of return, standard deviation, coefficient of variation Personal Finance Problem Donald is searching for a stock to include in his current stock portfolio. He
Rate of return, standard deviation, coefficient of variation
Personal Finance Problem
Donald 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 company's computer products and believes Hi-Tech is an innovative market player. However, Donald 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 1.16. Donald has obtained the following price information for the period
2015 through 2018:
2015 $14.43 $20.58
2016 $20.58 $64.44
2017 $64.44 $72.08
2018 $72.08 $91.35
Hi-Tech stock, being growth-oriented, did not pay any dividends during these 4 years.
a.Calculate the rate of return for each year, 2015 through 2018, for Hi-Tech stock.
b.Assume that each year's return is equally probable and calculate the average return over this time period.
c.Calculate the standard deviation of returns over the past 4 years.(Hint: Treat this 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 Donald's decision regarding the inclusion of Hi-Tech stock in his portfolio?
Please help and include excel formulas.
1. The rate of return for year 2015 is________ (round to two decimal places)
- The rate of return 2018 is ________
3. The coefficient of variation for Hi-Tech stock is _____
4 given the calculation in D. what should be Donalds decision / should he include it in his portfolio? Or no?
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