TABLE 17-3
The following information is from 2 investment opportunities.
$$\begin{array} { l c r }
& A & B \
\text { Expected monetary value } & \$ 900 & \$ 600 \
\text { Standard deviation } & 100 & 50
\end{array}$$
-Referring to Table 17-3, which investment has the optimal coefficient of variation?
A) Investment A
B) Investment B
C) The investments are equal.
D) It cannot be determined.

Question

TABLE 17-3
The following information is from 2 investment opportunities.
 $$\begin{array} { l c r } 
& A & B \
\text { Expected monetary value } & \$ 900 & \$ 600 \
\text { Standard deviation } & 100 & 50
\end{array}$$
-Referring to Table 17-3, which investment has the optimal coefficient of variation?
A) Investment A
B) Investment B
C) The investments are equal.
D) It cannot be determined.

Quizplus · Accepted Answer

The coefficient of variation is calculated as the standard deviation divided by the expected monetary value. Investment A has a coefficient of variation of 100/900 = 0.111, while Investment B has a coefficient of variation of 50/600 = 0.083. Investment B has the lower coefficient of variation, indicating it has less risk per unit of return.