FIN 486 Expect Success/uophelp.com FIN 486 Expect Success/uophelp.com | Page 9

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?
P8–10 Assessing return and risk Swift Manufacturing must choose
between two asset purchases. The annual rate of return and the related
probabilities given in the following table summarize the firm’s
analysis to this point.
Project 257 Project 432
Rate of return Probability Rate of return Probability
−10% 0.01 10% 0.05
10 0.04 15 0.10
20 0.05 20 0.10
30 0.10 25 0.15
40 0.15 30 0.20
45 0.30 35 0.15
50 0.15 40 0.10
60 0.10 45 0.10
70 0.05 50 0.05