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# Fin350 Week 7 Module 7 Practice Problems

• Date Submitted: 03/30/2016 11:50 PM
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Fin350 Week 7 Module 7 Practice Problems
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1. Do all work in Excel. Do not submit Word files or *.pdf files.
2. Submit a single spreadsheet file for this assignment. Do not submit multiple files.
3. Place each problem on a separate spreadsheet tab.
P8–9 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 company’s 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 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
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 Mike’s decision regarding the inclusion
of Hi-Tech stock in his portfolio?

P8–14 Portfolio analysis You have been given the expected return data shown in the first

table on three assets—F, G, and...