Question

If the standard deviation of a particular standalone investment is 21.5% and the coefficient of variation is 2.5, what is the expected return on the investment?

Answer 1

Solution :

The formula for calculating the coefficient of variation of an Investment is

Coefficient of variation = Standard Deviation / Expected Return

As per the information given in the question we have

Standard Deviation = 21.5 % ; Coefficient of Variation = 2.5 ; Expected Return = To find ;

Applying the above information in the question we have

2.5 = 21.5 % / Expected Return

2.5 * Expected Return = 21.5 %

Expected Return = 21.5 % / 2.5 = 8.6 %

Thus Expected Return of the given stand alone investment is = 8.6 %