Because of differences in the expected returns on different investments, the standard deviation is not always an adequate measure of risk. However, the coefficient of variation adjusts for differences in expected returns and thus allows investors to make better comparisons of investments' stand-alone risk. a) True b) False

Question

Arielle Silva

Business

3 July, 21:42

Because of differences in the expected returns on different investments, the standard deviation is not always an adequate measure of risk. However, the coefficient of variation adjusts for differences in expected returns and thus allows investors to make better comparisons of investments' stand-alone risk. a) True b) False

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Answers (1)

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Darius Keith · Answer 1

True

Explanation:

The coefficient of variation is a better risk measure than the standard deviation because the standard deviation of data must always be understood in the context of the mean of the data, so it can be adjusted for the size of the project. By dividing the standard deviation by the mean, coefficient of variation gets dimensionless measurement, because it's independent of the unit in with the data was taken.