Question

Analysis of portfolio returns over a 20-year period showed the statistics below.

Click here for the Excel Data File

(a) Calculate and compare the coefficients of variation. (Round your answers to 2 decimal places.)

Investment	Mean Return	Standard Deviation	Coefficient of Variation
Venture funds (adjusted)	18.4	13.0	%
All common stocks	11.9	12.2	%
Real estate	8.5	17.0	%
Federal short-term paper	6.2	2.4	%

(b) Why would we use a coefficient of variation, and why not just compare the standard deviations?

	The standard deviations are relative and not absolute measures of dispersion.
	Standard deviation can only be compared when the variables have different units of measure.
	The standard deviations are an "absolute", not relative, measure of dispersion. It is best to use the CV when comparing across variables that have different means.

(c) What do the data tell you about risk and return at that time period?

	Federal short-term paper has the lowest standard deviation and hence the greatest risk; real estate, the lowest risk.
	Venture funds have lower risk and greater return than common stocks based on the CV.
	Venture funds have greater risk and lower return than common stocks based on the CV.
	Federal short-term paper has the lowest CV and hence the greatest risk; real estate, the lowest risk.

Answer 1

since Coefficient of Variation =(Standard Deviation/mean)*100

Investment	Mean	Standard	Coefficient of
	Return	Deviation	Variation
Venture funds (adjusted)	18.4	13	70.65
All common stocks	11.9	12.2	102.52
Real estate	8.5	17	200.00
Federal short-term paper	6.2	2.4	38.71

b)

The standard deviations are an "absolute", not relative, measure of dispersion. It is best to use the CV when comparing across variables that have different means.

c)

Venture funds have lower risk and greater return than common stocks based on the CV.