Question

A bond has a standard deviation of 10.7 percent and an average rate of return of 6.4 percent. What is the coefficient of variation (CoV)

Answer 1

Answer:

CoV = 1.671875 rounded off to 1.67

Explanation:

The coefficient of variation (CoV) is a measure of volatility of an investment. It tells the volatility in comparison with the expected return from the investment. We can say that the CoV tells us the risk per unit of return as CoV is calculated by dividing standard deviation, which is a measure of risk, by the expected return of the investment.

CoV = SD / r

Where,

• SD is the standard deviation
• r is the expected return

CoV = 0.107 / 0.064

CoV = 1.671875 rounded off to 1.67