2. An investor is planning to invest in two stocks: Stock A and Stock B. The investor collected information on the annual percentage returns on the two stocks over a 7 year period. From this data, the investor found that: Mean (A)=1.42%; mean (B) = 5.80%; s.d (A)= 0.163% and s.d (B)= 1.47% Which stock is considered riskier (that is, with the higher Coefficient of Variation)?

The **coefficient of variation (CV)** is a measure of relative risk, calculated as the ratio of the standard deviation to the mean, and it shows the extent of variability in relation to the mean of the data. The formula for the coefficient of variation is:

\[
\text{CV} = \frac{\text{Standard Deviation}}{\text{Mean}} \times 100
\]

We are given the following dataThe **coefficient of variation (CV)** is a measure of relative risk, calculated as the ratio of the standard deviation to the mean, and it shows the extent of variability in relation to the mean of the data. The formula for the coefficient of variation is:

\[
\text{CV} = \frac{\text{Standard Deviation}}{\text{Mean}} \times 100
\]

We are given the following 
- Mean of Stock A (\(\mu_A\)) = 1.42%
- Standard deviation of Stock A (\(\sigma_A\)) = 0.163%
- Mean of Stock B (\(\mu_B\)) = 5.80%
- Standard deviation of Stock B (\(\sigma_B\)) = 1.47%

Let's calculate the coefficient of variation for both stocks.

### Coefficient of Variation for Stock A:
\[
CV_A = \frac{0.163}{1.42} \times 100
\]

### Coefficient of Variation for Stock B:
\[
CV_B = \frac{1.47}{5.80} \times 100
\]

Let me calculate these values.The **coefficient of variation (CV)** for the two stocks are as follows:
- **CV of Stock A** = 11.48%
- **CV of Stock B** = 25.34%

Since Stock B has a higher coefficient of variation, it is considered riskier. This means Stock B has more variability in returns relative to its mean return compared to Stock A.

Do you want further details or have any questions about this analysis?

Here are 5 related questions to expand your understanding:
1. How does the coefficient of variation help in comparing risk across different stocks?
2. What are some other common risk measures used in investment analysis?
3. How would the coefficient of variation change if the standard deviation increases but the mean stays constant?
4. What are the limitations of using the coefficient of variation in assessing risk?
5. Can a stock with a higher mean return ever be considered less risky despite a higher standard deviation?

**Tip**: When comparing investments, always consider both the mean return and the variability to make well-rounded decisions.

An investor is planning to invest in two stocks: Stock A and Stock B. The investor collected information on the annual percentage returns on the two stocks over a 7-year period. From this data, the investor found that: Mean (A) = 1.42%; Mean (B) = 5.80%; s.d (A) = 0.163% and s.d (B) = 1.47%. Which stock is considered riskier (that is, with the higher Coefficient of Variation)?

Learn how to compare the risk of two stocks, A and B, by calculating their Coefficient of Variation. Stock A has a mean return of 1.42% and a standard deviation of 0.163%, while Stock B has a mean return of 5.80% and a standard deviation of 1.47%. Find out which stock is riskier based on the CV formula, a critical tool in finance for risk assessment.

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