Question

Ms Parker found two opportunities of investment A (rate of return 4%, standard deviation 4%) and investment B (rate of return 6%, standard deviation 3%). Which one is better for her? (hints: calculate each CV and then compare each other)

a. A
b. B
c. none

Answer 1

Investment B is better option

Step-by-step explanation:

Data provided in the question;

Investment A :

Rate of return = 4%,

Standard deviation = 4%

Investment B :

Rate of return = 6%,

Standard deviation = 3%

Now,

Calculating the Coefficient of variation for each investment

The Coefficient of variation is calculated as

= [ Standard deviation ÷ Mean ]

Thus,

For Investment A

Coefficient of variation = [ 4% ÷ 4% ] = 1

For Investment B

Coefficient of variation = [ 3% ÷ 6% ] = 0.5

since,

Coefficient of variation for investment B is lower

Hence,

Investment B is better option