Answer:
A. Project A
B. Project A has lowest Standard Deviation
C. Project D
Explanation:
A.
The higher the range, the more risky the project is. Based on the table, project A has the smallest range, and therefore is the least risky based on range.
B.
The standard deviation is not scale-free, i.e. it is not adjusted for the level of returns. Hence, a project that has the same distribution of returns, but a higher average return, will have a higher standard deviation. But the project is not any more risky. Hence, the standard deviation might not be an appropriate measure of risk.
C.
The Coefficient of Variation (CV) is calculated as follows:
CV = Standard deviation / expected return
Applying this formula, the coefficient of variation for each project is:
Project A: 2.9% / 12.0% = 0.242
Project B: 3.2% / 12.5% = 0.256
Project C: 3.5% / 13.0% = 0.269
Project D: 3.0% / 12.8% = 0.23
4
Based on the coefficient of variation, project D has the lowest coefficient. It means that the project has the lowest risk per unit of return generated, and thus is the best project and should be chosen.
