Question

14 Problem 9-33 Risk, Return, and Their Relationship (LG9-3, LG9-4) Consider the following annual returns of Estee Lauder and Lowe's Companies Estee Lowe's LauderCompanies Year 1 Year 2 Year 3 Year 4 Year 5 24.3% -28.0 18.5 50.8 -3.0% 17.0 5.1 48.0 Book -18.0 Hint ute each stock's average return, standard deviation, and coefficient of variation, (Round your answers to 2 decimal places.) Print Estee Lauder Lowe's Companies Average retun Standard deviation Coefficient of variation rences Which stock appears better? Estee Lauder Lowe's Companies

Answer 1

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

Estee Lauder Lowe's Companies Year 1 Year 2 Year 3 Year 4 Year 5 24.30% -28.00% 18.50% 50.80% -17.70% -3.00% 17.00% 5.10% 48.00% -18.00% 4 6 9.58% 28.82% 3.01 9.82% 22.23% 2.26 1Average Return Standard deviation Coefficient of Variantion 10 12 13 14 15 16 2 Estee lauder is risker than lowe's companies because coefficient of variation of Estee is high which means risk for per unit of return of Estee is greater than Lowe's. Thus, Lowe's compaines is better.

Cell reference -

Estee Lauder Lowe's Companies -0.03 0.17 0.051 0.48 0.18 2Year 1 Year 2 Year 3 Year 4 0.243 -0.28 0.185 0.508 4 6 Year 5 8 1 Average Return 10 Coefficient of Variantion C9/C8 AVERAGE(C2:C6) AVERAGE(D2:D6) STDEV.P(C2:C6) ESTDEV.P(D2:D6) 9 Standard deviation D9/D8 12 2 Estee lauder is risker than lowe's companies because coefficient 13 of variation of Estee is high which means risk for per unit of 14 return of Estee is greater than Lowe's. Thus, Lowe's compaines is 15 better. 16

Lowe's companies appears better because its less risky than estee lauder.

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