CFA Level IQuantitative MethodsEasy
A portfolio has an expected annual return of 12% and a standard deviation of 18%. What is the coefficient of variation (CV) of returns?
- A0.67
- B1.50
- C30.00
- D6.00
Show answer & explanationAnswer & explanation
Correct answer: B. 1.50
CV = standard deviation / mean = 18% / 12% = 1.50. CV measures the amount of risk (dispersion) per unit of expected return, useful for comparing risk across assets with different means.
Why the other options are wrong
- A. This inverts the ratio (mean/std dev) instead of std dev/mean.
- C. This simply adds/multiplies the two figures incorrectly rather than dividing.
- D. This results from an incorrect division error.
Coefficient of Variation
CV is a relative measure of dispersion that expresses standard deviation as a percentage of the mean, useful for comparing risk per unit of return across different assets.
- CV = standard deviation / mean
- Lower CV means less risk per unit of return
- Useful when comparing distributions with different means
Memory trick: CV tells you the risk you pay per percent of return.