The expected rate of return and standard deviations, respectively for four stocks are given below:
$\begin{array}{ll}
\mathrm{ABC} & 9 \%, 3 \% \
\mathrm{CDE} & 11 \%, 9 \% \
\mathrm{FGH} & 12 \%, 8 \% \
\text { IJK } & 14 \%, 10 \%
\end{array}$
Which investment offers the lowest expected return relative to its standard deviation?
A) ABC
B) CDE
C) FGH
D) IJK

Question

The expected rate of return and standard deviations, respectively for four stocks are given below:
 $\begin{array}{ll}
\mathrm{ABC} & 9 \%, 3 \% \
\mathrm{CDE} & 11 \%, 9 \% \
\mathrm{FGH} & 12 \%, 8 \% \
\text { IJK } & 14 \%, 10 \%
\end{array}$
 Which investment offers the lowest expected return relative to its standard deviation?
A) ABC
B) CDE
C) FGH
D) IJK

Quizplus · Accepted Answer

The coefficient of variation (CV) is used to determine the lowest expected return relative to its standard deviation. CV is calculated as the standard deviation divided by the expected return. CDE has the highest CV (9%/11% = 0.818), indicating the lowest return relative to its risk.

The Expected Rate of Return and Standard Deviations, Respectively for Four