Question

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 12 percent and standard deviation of 25 percent. The average return and standard deviation of Idol Staff are 15 percent and 35 percent; and of Poker-R-Us are 9 percent and 20 percent

Answer 1

Answer:

1. Rail Haul

2. Poker R- Us

3. Idol staff

Explanation:

The computation of the coefficient of variation is shown below:

As we know that

Coefficient of variation = Standard deviation ÷ average return × 100

For Rail Haul, it would be

= 25% ÷ 12% × 100

= 208.3333

For Idol staff, it would be

= 35% ÷ 15% × 100

= 233.3333

For Poker R-us, it would be

= 20% ÷ 9% × 100

= 222.22

Now we know that the highest  coefficient of variation leads to high risk so the rank is as best to worst

1. Rail Haul

2. Poker R- Us

3. Idol staff