Question

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 11 percent and standard deviation of 22 percent. The average return and standard deviation of Idol Staff are 14 percent and 32 percent; and of Poker-R-Us are 8 percent and 18 percent.

Answer 1

Answer ; To Rank the following three stocks by their risk-return relationship, best to worst we need to first calculate Coefficient of Variation.

Coefficient of Variation = Standard deviation / Return

Below is the Table showing Coefficient of Variation and ranks

Stock	Standard Deviation	Return	Coefficient of Variation	Rank
Rail Haul	22%	11%	22% / 11% = 2.00	1
Idol Staff	32%	14%	32% / 14% =2.286	3
Poker - R-Us	18%	8%	18% / 8% = 2.25	2

The one with the lowest coeffiecient of variation has the best risk return Relationship.