You observe the following information regarding Companies X and Y: ∙
Company X has a higher expected return than Company Y.
∙
Company X has a lower standard deviation of returns than Company Y.
∙
Company X has a higher beta than Company Y.
Given this information, which of the following statements is CORRECT?
A) Company X has a lower coefficient of variation than Company Y.
B) Company X has less market risk than Company Y.
C) Company X's returns will be negative when Y's returns are positive.
D) Company X's stock is a better buy than Company Y's stock.
E) Company X has more diversifiable risk than Company Y.

Question

Quizplus · Accepted Answer

The coefficient of variation is calculated as the standard deviation divided by the expected return. Since Company X has a higher expected return and a lower standard deviation than Company Y, it will have a lower coefficient of variation, indicating a better risk-adjusted return.

You Observe the Following Information Regarding Companies X and Y