The state of the economy has a strong effect on the expected returns for Techspace, Inc., as
Given that the standard deviation (σ) of Techspace returns is 15.36% and the expected
rate of return is 8%, the coefficient of variation is
Answer (A) is correct. The coefficient of variation is useful when the rates of return and standard deviations of two investments differ. It measures the risk per unit of return.
Techspace’s is calculated as follows:
Coefficient of variation = 15.36% ÷ 8%
Answer (B) is incorrect. This percentage results from multiplying, rather than dividing, the standard deviation and expected rate of return.
Answer (C) is incorrect. One is the upper limit of the value for the beta coefficient of a security.
Answer (D) is incorrect. This percentage is the total weighted squared variance.