Optimistic 24 % 30 %
a . Determine the range of the rates of return for each of the two projects .
b . Which project is less risky ? Why ?
c . If you were making the investment decision , which one would you choose ? Why ? What does this decision imply about your feelings toward risk ?
d . Assume that expansion B ’ s most likely outcome is 21 % per year and that all other facts remain the same . Does your answer to part c now change ? Why ?
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