Asset A has a coefficient of variation of 1.2 and asset B has a coefficient of variation of 1.0.Based on this information, an individual would choose asset ____ if he or she wishes to maximize return for a given level of risk.
A)A
B)B
C)either A or B
D)none of the above

Question

Quizplus · Accepted Answer

The coefficient of variation (CV) is a measure of risk-adjusted return. A higher CV indicates higher risk for the same return, while a lower CV indicates lower risk for the same return. Therefore, in this case, asset B has a lower coefficient of variation than asset A, which means that it offers a higher return for a given level of risk. Since the individual wants to maximize return for a given level of risk, asset B would be the better choice.

Asset a Has a Coefficient of Variation of 1