Question

Calculate the coefficients of variation for the following stocks:

Stock | Expected return | Standard deviation of return |

1 | 0.065 | 0.29 |

2 | 0.04 | 0.17 |

3 | 0.15 | 0.24 |

1. What is the coefficient of variation for stock 1?

2.What is the coefficient of variation for stock 2?

3. What is the coefficient of variation for stock 3?

4. If you want to get the best risk-to-reward trade-off, which stock should you buy?

Answer #1

The coefficient of variation is a statistical tool which provides the ratio of the standard deviation to the average(expected) return.

Thus, coefficient of variation = Standard Deviation / Expected Return

1.Coefficient of Variation for stock 1 = 0.29/0.065 = 4.4615 or
**4.46**

2.Coefficient of Variation for stock 2 = 0.17/0.04 =
**4.25**

3.Coefficient of Variation for stock 3 = 0.24/0.15 =
**1.60**

4. If the requirement is to get best risk-to-reward trade-off,
the stock with the lowest Coefficient of Variation needs to be
bought. Thus, **Stock 3 with the lowest Coefficient of
Variation is to be bought.**

Exercise
Calculate the expected return, variance, standard deviation and
coefficient of variation for the following stock:
Demand for Company’s Products
Probability of this outcome
Return if this occurs
Weak
.1
-50%
Below Average
.2
-5%
Average
.4
16%
Above Average
.2
25%
Strong
.1
60%
1.0

The expected return on stocks A and B are 20%, and 30%,
respectively. The standard deviation of stocks A and B are 20%, and
40%, respectivley. The correlation coefficient between the two
stocks is negative one. You plan to form a portfolio from stocks A
and B that will yield zero risk. What proportions of your money
will you invest in stock A?

Integrative—Expected return, standard
deviation, and coefficient of variation An asset is
currently being considered by Perth Industries. The probability
distribution of expected returns for this asset is shown in the
following table,
j
Pr
Return, r
1
0.05
15.00%
2
0.15
5.00%
3
0.70
0.00%
4
0.05
−5.00%
5
0.05
−10.00%
.
a.Calculate the expected value of return,
r,
for the asset.
b. Calculate the standard deviation, for the
asset's returns.
c. Calculate the coefficient of variation,
CV,...

Consider the following four stocks: Stock Expected Return (E[r])
Standard Deviation A 0.12 0.30 B 0.15 0.50 C 0.21 0.16 D 0.25 0.21
1) According to the mean-variance dominance principle, which stock
a rational and risk-averse investor will choose from stocks A, B
and C? How does this choice compare with stock D?

QUESTION 12
The investor is presented with the two following stocks:
Expected Return
Standard Deviation
Stock A
10%
30%
Stock B
20%
60%
Assume that the correlation coefficient between the stocks is
-1. What is the standard deviation of the return on the portfolio
that invests 30% in stock A?
A.
26%
B.
49%
C.
30%
D.
33%

Given the returns for two stocks with the following information,
calculate the correlation coefficient of the returns for the two
stocks. Assume the expected return is 14.4 percent for Stock 1 and
15.9 percent for Stock 2. Do not round intermediate
computations.
Prob
Stock
1 Stock
2
0.5
0.11
0.18
0.3
0.17
0.15
0.2
0.19
0.12

Stock A has an expected return of 13% and a standard deviation
of 22%, while Stock B has an expected return of 15% and a standard
deviation of 25%. If an investor is less risk-averse, they will be
likely to choose…
A. Stock A
B. Stock B
Stock A has a beta of 1.8 and an expected return of 12%. Stock B
has a beta of 0.7 and an expected return of 7%. If the risk-free
rate is 2% and...

Calculate Expected Rate of Return, variance, standard deviation,
and coefficient variation. I am unsure of how to solve this
problem
Outcomes: Probability Return
Better than Expected: 0.15 0.45
As Expected: 0.55 0.2
Worse than Expected: 0.25 0.05
Poor: 0.05 -0.25

37. Stock P offers an expected return of 20%, a standard
deviation of 6%, and a beta coefficient of 1.3. Stock Q offers an
expected return of 16%, a standard deviation of 4%, and a beta
coefficient of 0.95. Which stock would you recommend for purchase
and why? a. Stock P, because it has a lower coefficient of
variation b. Stock Q, because it has a lower coefficient of
variation c. Stock P, because it has a higher coefficient of...

Consider two stocks, A and B. Stock A has an expected return of
10% and a beta of 1.1. Stock B has an expected return of 16% and a
beta of 1.2. The market degree of risk aversion, A, is 4. The
variance of return on the market portfolio is 0.0175. The risk-free
rate is 5%. Required: (4*2.5 = 10pts) A. What is the expected
return of the market? B. Using the CAPM, calculate the expected
return of stock A....

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