Rate of return, standard deviation, coefficient of variationPersonal Finance Problem

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 company's computer products and believes 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 1.25. Mike has obtained the following price information for the period 2015 through 2018:

Beginning End

2015 $14.94 $20.04

2016 $20.04. $64.87

2017 $64.87. $72.91

2018 $72.91. $90.21

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 Mike's decision regarding the inclusion of Hi-Tech stock in his portfolio?