Question
The coefficient of variation is a better measure of stand-alone risk than standard deviation because it is a standardized measure of risk per unit; it
The coefficient of variation is a better measure of stand-alone risk than standard deviation because it is a standardized measure of risk per unit; it is calculated as the -Select-correlation coefficientrisk premiumstandard deviationCorrect 5 of Item 1 divided by the expected return. The coefficient of variation shows the risk per unit of return, so it provides a more meaningful risk measure when the expected returns on two alternatives are not -Select-identicaldifferentcorrelatedCorrect 6 of Item 1.
The Sharpe ratio compares the asset's realized excess return to its -Select-coefficient of variationstandard deviationaverage returnCorrect 7 of Item 1 over a specified period. Excess returns measure the amount that investment returns are above the risk-free rate so investments with returns equal to the risk-free rate will have a -Select-positivenegativezeroCorrect 8 of Item 1 Sharpe ratio. It follows that over a given time period, investments with -Select-higherlowerCorrect 9 of Item 1 Sharpe ratios performed better, because they generated higher -Select-higherlowerCorrect 10 of Item 1 excess returns per unit of risk. The Sharpe ratio is calculated as:
Quantitative Problem: You are given the following probability distribution for CHC Enterprises:
State of Economy | Probability | Rate of return | |
Strong | 0.20 | 18 | % |
Normal | 0.45 | 8 | % |
Weak | 0.35 | -4 | % |
What is the stock's expected return? Do not round intermediate calculations. Round your answer to two decimal places.
%
What is the stock's standard deviation? Do not round intermediate calculations. Round your answer to two decimal places.
%
What is the stock's coefficient of variation? Do not round intermediate calculations. Round your answer to two decimal places.
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