Question

Name Risk and return Assignment A. Calculate the rate of return for each investment for the specified period of time: Note: You can use my template below or do your own calculation Total Return % Return Cash flow during period Beg Value Ending Vall Inc/Dec $ (800) $ 1,100 $ 100 $ 15,000 $ 120,000 $ 118,000 7,000 $ 45,000 $ 48,000 $ 80 $ 600 $ 500 1,500 $ 12,500 $ 12,400 D B. You are analyzing 4 investments and you have gathered the information for each: Expected Std Dev Cof V Alternative Return 20% 7.0% 22% 9.5% 19% 6.0% 16% 5.5% B Calculate the coefficient of variation for each Which investment should you pick and why? B. You are considering an investment in ABC Corp. The expected return is 18.9%; with a standard deviation of 15%. the coefficient of variation (CV) is 75. Prepare a chart displaying the range of expected return outcomes associated with 1 standard deviation (SD): 2 SD and 3SD.

Answer 1

b)

	Return	SD	CoV
A	20%	7%	0.35
B	22%	9.50%	0.43
C	19%	6%	0.32
D	16%	5.50%	0.34

Coefficient of Variation (CoV) = Std. Dev. / Return

CoV tells us the amount of risk per unit of return. Lower the CoV better the investment. Hence, select Option C.