Answer (D) is correct . The coefficient of variation is useful when the rates of return and standard deviations of two investments differ. It measures the risk per unit of return because it divides the standard deviation by the expected return. Thus, the risk per unit of return for Investment D is 1.00 (.10 ¡Â .10), which is the lowest of the given investments.Answer (A) is incorrect because Investment A has a risk per unit of return of 1.25 (.25 ¡Â .20), which is higher than that of Investment?D.
Answer (B) is incorrect because Investment B has a risk per unit of return of 1.11 (.20 ¡Â .18), which is higher than that of Investment D.
Answer (C) is incorrect because Investment C has a risk per unit of return of 1.50 (.12 ¡Â .08), which is higher than that of Investment D.< |
What investment is the best choice in terms of the risk/return relationship?