# Troublesome coefficient of variation question.

1. Nov 27, 2009

### th_05

Given the following data for three possibile investments, A, B and C, calculate the coefficient of variation and with the aid of a diagram explain which is the least risky investment.

Expected Profit: A - 100 B - 120 C - 140
Standard Devi.: A - 10 B - 30 C - 20

I presume to calculate the COV you divide the standard deviation by the mean, to give you:

A: 100/10 = 0.1 B: 30/120 = 0.25 C: 20/140 = 0.14

I am struggling with how/what sort of diagram to use and how to explain which is the least risky investment. Any ideas would be great.

2. Nov 28, 2009

Are you to assume that the underlying distributions are normal for each investment? If so, you have the mean and standard deviation for each investment; draw the bell curves.

For evaluating which is riskiest: the use of the coefficient of variation is pretty informal: begin by stating, in your own words, what the c.v. tells you (I don't mean in terms of what percentage of the mean the standard deviation is, I mean the interpretation). You may find yourself answering the question when you do that.

3. Nov 29, 2009

### th_05

Thanks very much. It is normal distribution yes, I have not used c.v. before so what exactly does this tell me? And shall I draw out a curve for each investment?

4. Nov 29, 2009