Explain how to assess stand-alone risk vs. corporate risk between projects (standard deviation vs coefficient of...

Explain how to assess stand-alone risk vs. corporate risk between projects (standard deviation vs coefficient of variation)

Expert Solution

The measure of stated-alone risk is standard deviation which is an absolute measure of dispersion

Standard deviation = √ [∑ (specific return – expected return) ^2/ (n-1)]

Where, n is sample size

The coefficient of variation is relative risk measure and it is a simple measure of risk and reward ratio

Coefficient of Variation (CV) = Standard Deviation of Returns/ Expected Average Rate of Return

For evaluating the corporate risk; the coefficient of variation (CV) is a better measure of risk than the standard deviation (SD) because the coefficient of variation adjusts for the size of the project as it is relative measures of dispersion while the standard deviation is an absolute measure of dispersion.

jeff jeffy answered 2 years ago

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