Question

Suppose you remembered that the coefficient of variation (CV) is generally regarded as being a better measure of stand-alone risk than standard deviation when alternatives being considered have widely differing expected returns. Calculate the missing CVS. (2.5 pts) Standard Deviation Coefficient of Variation (CV) High Tech = 20.0% OT-bills = 0.0% Collections = 11.2% OU.S. Rubber = 18.8 OM = 15.2%

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A B C D E F G H I State of the Economy Recession Below Average Average Aboe average Boom Expected Return Standard deviation Probability 0.1 0.2 0.4 0.2 0.1 T-bills 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 0.0% High Tech | Collections | U.S Rubber -29.5% 24.5% 3.5% -9.5% 10.5% -16.5% 12.5% -1.0% 0.5% 27.5% -5.0% 38.5% 42.5% -20.0% 23.5% 9.9% 1.2% 7.3% 20.0% 11.2% 18.8% Market -19.5% -5.5% 7.5% 22.5% 35.5% 8.0% 15.2% Return Coeffiicient of Variation (CV) 2.0 High Tech T-bills Collections U.S Rubber Market Standard deviation 20.0% 0.0% 11.2% 18.8% 15.2% 9.9% 3.0% 1.2% 7.3% 8.0% 0.0 9.8 2.6 1.9

Cell reference -

0.2 State of the Economy Probability Recession Below Average Average Aboe average Boom Expected Return Standard deviation T-bills High Tech Collections U.S Rubber Market 0.03 -0.295 0.245 0.035 -0.195 0.03 -0.095 0.105 -0.165 -0.055 0.03 0.125 -0.01 0.005 0.075 0.03 0.275 -0.05 0.385 0.225 0.03 0.425 -0.2 0.235 0.355 =SUMPRODUCT($C$3:$C$7,D3:07) =SUMPRODUCT($C$3:$C$7,E3:E7) =SUMPRODUCT($C$3:$C$7,F3:F7) =SUMPRODUCT($C$3:$C$7,63:67) =SUMPRODUCT($C$3:$C$7,H3:H7) =SQRT(SUMPRODUCT((D8-D3:07)^2,$C$3:$C$7)) =SQRT(SUMPRODUCT((E8-E3:E7)^2, $C$3:$C$7)) |=SQRT(SUMPRODUCT((F8-F3:F7)^2, $C$3:$C$7)) =SQRT(SUMPRODUCT((G8-G3:47)^2, $C$3:$C$7)) =SQRT(SUMPRODUCT((H8-H3:47)^2,$C$3:$C$7)) O Return Coefficient of Variation (CV) Standard deviation =E9 =D9 =F9 =E8 =D8 =F8 =C12/D12 =C13/D13 =C14/D14 =C15/D15 =C16/D16 =H9 =H8

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