NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Risk and Return
A stock has an expected return of 14% and a standard deviation of 20%. What is its coefficient of variation?
The coefficient of variation is 1.43, found by dividing the standard deviation of 20% by the expected return of 14%. It measures risk per unit of return, so a lower figure indicates a better risk-return trade-off for the investor.
- A0.70
- B1.43Correct
- C2.80
- D0.14
Explanation
Coefficient of variation = standard deviation / expected return = 20/14 = 1.43. The option 0.70 inverts the ratio (14/20). The value 2.80 comes from wrongly multiplying, and 0.14 simply repeats the return in decimal form.
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