A stock has an expected return of 10% and a variance of 25%. Its coefficient of variation is:
A)2.5.
B)0.4.
C)5.0.
D)2.0.

Question

Quizplus · Accepted Answer

The coefficient of variation (CV) is calculated as the ratio of the standard deviation of a stock's returns to its expected return. Therefore, we can calculate the CV as:

CV = Standard Deviation / Expected Return

Since the variance of the stock is given as 25%, we can find its standard deviation as the square root of the variance:

Standard Deviation = sqrt(0.25) = 0.5

Using the given expected return of 10%, we can calculate the stock's CV as:

CV = 0.5 / 0.1 = 5

Therefore, the correct answer is C, with a CV of 5.

A Stock Has an Expected Return of 10% and a Variance