Sensor Technology wishes to determine its coefficient of variation as a company

Question

Sensor Technology wishes to determine its coefficient of variation as a company over time. The firm projects the following data (in millions of dollars): Year Profits: Expected Value Standard Deviation 1 ............................. $ 90 $ 31 3 ............................. 120 52 6 ............................. 150 83 9 ............................. 200 146 a. Compute the coefficient of variation (V) for each time period. b. Does the risk (V) appear to be increasing over a period of time? If so, why might this be the case?

Explanation / Answer

a.

Year

Profits: Expected Value

Standard Deviation

Coefficient of Variation

1

90

31

.344

3

120

52

.433

6

150

83

.553

9

200

146

.730

**Coefficient of Variation = Standard Deviation / Profits

b. Yes, the risk appears to be increasing over time. This may be related to the inability to make forecasts far into the future. There is more uncertainty.

Year

Profits: Expected Value

Standard Deviation

Coefficient of Variation

1

90

31

.344

3

120

52

.433

6

150

83

.553

9

200

146

.730

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