Question

New Century Inc. is considering a capital budgeting project that has an expected return of 24% and a standard deviation of 30%. What is the project's coefficient of variation?

a. 1.25

b. 0.99

c. 1.03

d. 1.40

Answer 1

The coefficient of variation for the project is calculated by dividing the standard deviation (30%) by the expected return (24%), resulting in a coefficient of variation of 1.25. Therefore, the correct answer is option a. 1.25.

Step-by-step explanation:

The question is asking to calculate the coefficient of variation for a given project which has an expected return of 24% and a standard deviation of 30%. The coefficient of variation (CV) is a statistical measure of the dispersion of data points in a data series around the mean. It is calculated as the ratio of the standard deviation to the mean. In this case, to find the CV for the project:

CV = Standard Deviation / Expected Return

CV = 0.30 / 0.24

CV = 1.25

Therefore, option a. 1.25 is the correct answer.