Investment Formula #9

Question 1

What is the formula for coefficient of variation?

Answer 1

CV=σ/χ

Question 2

Why would you use this formula?

Answer 2

CV is a measure of relative variability used to compare investments with widely varying rates of return and standard deviations

Question 3

What does X stand for?

Answer 3

The mean

Question 4

True or false CV indicates risk per unit of expected return

Answer 4

True

Question 5

What does a higher versus lower number mean?

Answer 5

Higher, the result, the greater relative risk

Question 6

A security has a coefficient of variation of 1.27 and a standard deviation of 13%. What is the expected return of the security?

Answer 6

10.236%
X=σ/CV
The expected return is the mean

Question 7

What can the “mean” be referred to in problems?

Answer 7

In finance, the mean of an investment’s possible returns is often referred to as the expected return. It represents the average or typical return an investor anticipates from the investment. This calculation helps investors understand the potential profit or loss they can expect from their investments.

Question 9

What is the difference between variability and volatility?

Answer 9

In finance, variability describes the general tendency of an asset’s returns to spread out or deviate from the average. Volatility, on the other hand, measures how much those returns deviate from average over a specific period of time. Essentially, variability is the general characteristic of an asset’s price fluctuations, while volatility is the specific measure of those fluctuations over a defined timeframe