1215

If the historical mean return on an investment is 2.0% and the standard deviation is 8.8%, what is the coefficient of variation (CV)?

A) 1.76.

B) 6.80.

C) 4.40.

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The CV = the standard deviation of returns / mean return or 8.8% / 2.0% = 4.4.

1215

A portfolio of options had a return of 22% with a standard deviation of 20%. If the risk-free rate is 7.5%, what is the Sharpe ratio for the portfolio?

A) 0.568.

B) 0.725.

C) 0.147.

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Sharpe ratio = (22% – 7.50%) / 20% = 0.725.

1215

The mean monthly return on (U.S. Treasury bills) T-bills is 0.42% with a standard deviation of 0.25%. What is the coefficient of variation?

A) 84%.

B) 60%.

C) 168%.

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The coefficient of variation expresses how much dispersion exists relative to the mean of a distribution and is found by CV = s / mean, or 0.25 / 0.42 = 0.595, or 60%.

1215

An investor is considering two investments. Stock A has a mean annual return of 16% and a standard deviation of 14%. Stock B has a mean annual return of 20% and a standard deviation of 30%. Calculate the coefficient of variation (CV) of each stock and determine if Stock A has less dispersion or more dispersion relative to B. Stock A's CV is:

A) 0.875, and thus has less dispersion relative to the mean than Stock B.

B) 1.14, and thus has more dispersion relative to the mean than Stock B.

C) 1.14, and thus has less dispersion relative to the mean than Stock B.

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CV stock A = 0.14 / 0.16 = 0.875

CV stock B = 0.30 / 0.20 = 1.5

Stock A has less dispersion relative to the mean than Stock B.

1215

The mean monthly return on a sample of small stocks is 4.56% with a standard deviation of 3.56%. What is the coefficient of variation?

A) 128%.

B) 84%.

C) 78%.

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The coefficient of variation expresses how much dispersion exists relative to the mean of a distribution and is found by CV = s / mean. 3.56 / 4.56 = 0.781, or 78%.