Question

Which of these is a measure of risk to reward earned by an investment over a specific period of time?
A. Coefficient of variation
B. Market deviation
C. Standard deviation
D. Total variation

Answer 1

Answer:

The correct answer is A. Coefficient of variation.

Explanation:

Coefficient of variation is the risk of an asset or portfolio per unit of return.

Coefficient of variation = Standard deviation/ Return

Lower the coefficient, better it is.

If portfolio have same return but different risk or same risk but different return then inventor will prefer portfolio with

• higest return at a given level of risk or
• Lowest risk at given level of return

If portfolio have different returns with different risks, then protfolio with lower coefficient of variation is preferred.