Question

Which of the following statements correctly explains the coefficient of variation (CV)?

A. The CV is a relative measure of risk/return.
B. The CV is an absolute measure of risk/return.
C. The higher the CV value the more acceptable the risk/return profile for a risk-averse investor.
D. The lower the CV value the more acceptable the risk/return profile for a risk-averse investor.

Answer 1

A. The CV is a relative measure of risk/return.

Explanation:

The coefficient of variation of any investment, is used to measure and calculate the total risk of that investment with respect to its per unit expected return rate.

We can also define the coefficient of variation as a ratio of standard deviation to the expected value of an investment.

The answer is - A. The CV is a relative measure of risk/return.