Stock A has an expected return of 12% and a standard deviation of 3%. Stock B...
Stock A has an expected return of 12% and a standard deviation of 3%. Stock B has an expected return of 15% and a standard deviation of 8%. Stock C has an expected return of 8% and a 2.5% standard deviation. Which of the following statements is most correct?
A. We would prefer to invest in Stock B because it has the highest return.
B. We would prefer to invest in stock C because it has the lowest risk.
C. We would prefer to invest in Stock A because it has the lowest CV.
D. We would prefer to invest in Stock B because it has the highest CV.
Homework Answers
Ans C. We would prefer to invest in Stock A because it has the lowest CV.
| STOCK A | STOCK B | STOCK C | |
| Coefficient of Variation = | Standard Deviation / Mean | Standard Deviation / Mean | Standard Deviation / Mean |
| 3% / 12% | 8% / 15% | 2.5% / 8% | |
| 0.25 | 0.666666667 | 0.3125 |
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