The variance of the returns of Stock X is 62.5 percent, and the expected return from the stock is 18 percent. Calculate the coefficient of variation of the stock.
A)3.47
B)0.44
C)40.98
D)0.29
E)1.86

Question

The variance of the returns of Stock X is 62.5 percent, and the expected return from the stock is 18 percent. Calculate the coefficient of variation of the stock. 
A)3.47
B)0.44
C)40.98
D)0.29
E)1.86

Quizplus · Accepted Answer

The coefficient of variation (CV) is calculated as the standard deviation (σ) divided by the mean (μ), expressed as a percentage. First, we need to find the standard deviation of Stock X's returns. Given the variance is 62.5%, the standard deviation is the square root of the variance, which is sqrt(62.5%) = 7.91%. The mean (expected return) is 18%. Thus, CV = (σ/μ) = (7.91%/18%) = 0.44.

The Variance of the Returns of Stock X Is 62