Cheng Inc. is considering a capital budgeting project that has an expected return of 40% and a...

Question:

Cheng Inc. is considering a capital budgeting project that has an expected return of 40% and a stand Cheng Inc. is considering a capital budgeting project that has an expected return of 40% and a standard deviation of 26%. What is the project's coefficient of variation?

A. 0.65

B. 0.94

C. 0.87

D. 0.79

E. 0.65

Coefficient of Variation:

The coefficient of variation is a statistical measure that measures the dispersion of data in a series of data. The coefficient of variation can also be used to measure the level of risks that are associated with an investment. The lower the coefficient of variation, the lower the risk.

Answer and Explanation:

The correct answers are A. 0.65, E. 0.65. The coefficient of variation is computed using the following formula:

  • {eq}\text{Coefficient of variation}=\dfrac{\text{Standared deviation}}{\text{Expected return}} {/eq}

The expected return is 40%.

Standard deviation is 16%.

  • {eq}\text{Coefficient of variation}=\dfrac{46\%}{40\%} {/eq}
  • {eq}\text{Coefficient of variation}=0.65 {/eq}

Learn more about this topic:

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Constant of Variation: Definition & Example

from High School Algebra II: Tutoring Solution

Chapter 19 / Lesson 10
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