Question

Consider the risky portfolios with expected returns and standard deviations of returns as given in the table below. Which of the statements about the portfolios that follow is true?

Portfolio	Expected Return	Standard Deviation
A	10%	5%
B	21%	11%
C	18%	23%
D	24%	16%

Group of answer choices

Portfolio C dominates portfolio A.

Portfolio B dominates portfolio C.

Portfolio B dominates portfolio A.

Portfolio D dominates portfolio B.

Answer 1

CoV is statistical measure which helps in calculating in SD required to generate a 1% of return (Lower the Better)

Coefficient of Variation of Portfolios

Portfolio A = Standard Deviation / return = 5% / 10% = 0.50

Portfolio B = Standard Deviation / return = 11% / 21% = 0.52

Portfolio C = Standard Deviation / return = 23% / 18% = 1.28

Portfolio D = Standard Deviation / return = 16% / 24% = 0.67

Ranking

1 - A

2 - B

3 - D

4 - C

Option B is correct Portfolio B dominates portfolio C.

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