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CA Foundation · Quantitative Aptitude · Measures of Central Tendency and Dispersion

A stock analyst records the monthly returns of two mutual funds. Fund P has a mean return of 8% and a standard deviation of 2%. Fund Q has a mean return of 12% and a standard deviation of 3.6%. Which statement is correct about relative risk per unit of return?

Fund P is more consistent. Its coefficient of variation is 2/8 × 100 = 25%, while Fund Q's is 3.6/12 × 100 = 30%. A lower CV signals less relative variability, so Fund P carries less risk per unit of return.

  1. AFund P is more consistent because its CV is 25% against 30% for Fund QCorrect
  2. BFund Q is more consistent because its CV is 30% against 25% for Fund P
  3. CFund P is more consistent because its standard deviation is smaller, and the CVs are equal
  4. DFund Q is more consistent because its mean is larger, and the CVs are equal

Explanation

CV = (SD/mean) × 100. For P: 2/8 × 100 = 25%. For Q: 3.6/12 × 100 = 30%. A lower CV means greater consistency, so P is more consistent. Option 2 reverses the interpretation of CV.

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