Answer (C) is correct . The coefficient of variation is useful when the rates of return and standard deviations of investments differ. It measures the risk per unit of return because it ? divides the standard deviation ( σ) by the expected rate of return ( R ). The coefficients of variation of Russell’s four investment proposals can thus be calculated as follows: Expected Standard Coefficient Returns Deviation of Variation Investment I 16% 10% 0.625 Investment II 14% 10% 0.714 Investment III 20% 11% 0.550 Investment IV 22% 15% 0.682
Answer (A) is incorrect because The coefficient of variation for Investment I is 0.625 (10% ¡Â 16%), which is not the lowest coefficient of the four.
Answer (B) is incorrect because Investment II has the highest relative level of risk with a coefficient of variation of 0.714 (10% ¡Â 14%).
Answer (D) is incorrect because The coefficient of variation for Investment IV is 0.682 (15% ¡Â 22%), which is not the lowest coefficient of the four.< |
Which one of the investment proposals has the least relative level of risk?