If $\sigma$ is the standard deviation of a project with expected returns $100 and $\sigma$² = 4,the coefficient of variation is: A) 1/25. B) 1/50. C) $200. D) $400. E) $5,000.

Question

Quizplus · Accepted Answer

The coefficient of variation (CV) is equal to the standard deviation (σ) divided by the expected return (μ), expressed as a percentage. Therefore, CV = σ/μ * 100%. In this case, σ = 4 and μ = 100, so CV = 4/100 * 100% = 4%. However, the question asks for the answer in dollar terms, so we need to multiply the CV by the expected return to get the dollar value. CV * μ = 0.04 * $100 = $4. Therefore, the coefficient of variation is $4 and the best choice is B.

If σ\sigmaσ Is the Standard Deviation of a Project with Expected Returns

If $\sigma$ Is the Standard Deviation of a Project with Expected Returns