e. Suppose you suddenly remembered that the coefficient of variation (CV) is gen

Question

e. Suppose you suddenly remembered that the coefficient of variation (CV) is generally regarded as being a better measure of stand-alone risk than the standard deviation when the alternatives being considered have widely differing expected returns. Calculate the missing CVs, and fill in the blanks on the row for CV. Does the CV produce the same risk rankings as the standard deviation?


T-Bills Alta Inds. Repo Men American Foam Market Port.
CV


Rankings Expected Return Standard Deviation CV
% Investment % Investment % Investment

Explanation / Answer

The coefficient of variation (CV) is a standardized measure of dispersion about the expected value; it shows the amount of risk per unit of return. CV = . CVT-bills = 0.0%/8.0% = 0.0. CVAlta Inds = 20.0%/17.4% = 1.1. CVRepo Men = 13.4%/1.7% = 7.9. CVAm Foam = 18.8%/13.8% = 1.4. CVM = 15.3%/15.0% = 1.0. When we measure risk per unit of return, Repo Men, with its low expected return, becomes the most risky stock. The CV is a better measure of an asset’s stand alone risk than s because CV considers both the expected value and the dispersion of a distribution--a security with a low expected return and a low standard deviation could have a higher chance of a loss than one with a high s but a high .

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.