The expected annual returns are 15% for investment 1 and 12% for investment 2. The standard deviation of the first investment’s return is 10%; the second investment’s return has a standard deviation of 5%. A.) Which investment is less risky based solely on standard deviation? (Investment 1 or Investment 2) B.) Which investment is less risky based on coefficient of variation? (Investment 1 or Investment 2) C.) Which is a better measure given that the expected returns of the two investments are not the same?
The expected annual returns are 15% for investment 1 and 12% for investment 2. The standard deviation of the first investment’s return is 10%; the second investment’s return has a standard deviation of 5%. A.) Which investment is less risky based solely on standard deviation? (Investment 1 or Investment 2) B.) Which investment is less risky based on coefficient of variation? (Investment 1 or Investment 2) C.) Which is a better measure given that the expected returns of the two investments are not the same?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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The expected annual returns are 15% for investment 1 and 12% for investment 2. The standard deviation of the first investment’s return is 10%; the second investment’s return has a standard deviation of 5%.
A.) Which investment is less risky based solely on standard deviation? (Investment 1 or Investment 2)
B.) Which investment is less risky based on coefficient of variation? (Investment 1 or Investment 2)
C.) Which is a better measure given that the expected returns of the two investments are not the same? (Coefficient of Variation or Standard Deviation)
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