Question

1. See the expected returns and standard deviation of returns for five restaurant stocks. Which one of these stocks is most attractive to a risk-averse investor? Why?

Stock	Return	Standard Deviation
Super Foods, Inc.	15%	9%
Crazy Snacks, Co.	12%	7.8%
Jedi Fast Food, Inc.	11%	8.5%
Porter’s Dining, Inc.	21%	18%
Truman Restaurants	18.5%	12%

Answer 1

With the information given, we can calculate the coefficient of variation for each stock as standard deviation/return.

A risk-averse investor will prefer a stock with the lowest standard deviation (risk) per unit return. So, based on the coefficient of variation, Super Foods, Inc. should be chosen as it has the lowest risk per unit return.