Question

In: Finance

Consider Fancy, Inc. stock. Based on the probability of economic outlooks, Fancy, Inc. stock is expected to earn 5.99% in the upcoming year with a standard deviation of 8.19%

Consider Fancy, Inc. stock. Based on the probability of economic outlooks, Fancy, Inc. stock is expected to earn 5.99% in the upcoming year with a standard deviation of 8.19%. What is the coefficient of variation for Fancy, Inc for returns in the upcoming year? The correct formula is standard deviation divided by expected return.  See Section 8-2D. Round your answer to the nearest two decimals.

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Solutions

Expert Solution

Ans:- Coefficient of Variation (CV) is calculated by Standard deviation (SD) / Expected return (Er)

SD is given 8.19% and Er is given 5.99%

Coefficient of variation (CV) = 8.19% / 5.99% = 1.37.

Therefore, the coefficient of variation for Fancy Inc is approx 1.37.

Note:- Coefficient of variation measures the risk per unit of return.

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