Quantitative Methods Q135
135The table below provides data on annual mean returns and standard deviations
| Asset Class | Arithmetic mean return(%) | Standard deviation of return (%) |
| Bond A | 16.4% | 4.9% |
| Bond B | 12.6% | 3.5% |
| Bond C | 14.8% | 4.2% |
Which of the above bonds is least risky using a relative measure?
- Option : B
- Explanation : In order to find the bond with the lowest risk per unit of return, we need to determine the bond with the lowest coefficient of variation. CV¯ = s/¯X ¯¯ where s is the sample standard de¯ viation¯ and ¯X ¯¯ is the sample mean. Bond A: CV = 4.9 = 0.299 Bond B: CV = 3.5 = 0.277 Bond C: CV = 4.2 = 0.284 Bond B, whose standard deviation and CV are the lowest, is least risky.
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