Tim Trepid is highly risk-averse while Mike Macho actually enjoys taking a risk.
ID: 2697779 • Letter: T
Question
Tim Trepid is highly risk-averse while Mike Macho actually enjoys taking a risk.Investments_______________Returns:Expected Value________________Standard Deviation
Buy Stocks________________$9,560______________________________$6530
Buy Bonds_________________7670_________________________________2660
Buy commodity futures_______25700_______________________________26400
Buy Options________________16700_______________________________20600
a. Compute the coefficients of variations (Round the answers to 3 decimal places)
b. Which of the four investments should TIm choose?
c. Which one should Mike choose?
Tim Trepid is highly risk-averse while Mike Macho actually enjoys taking a risk.
Investments_______________Returns:Expected Value________________Standard Deviation
Buy Stocks________________$9,560______________________________$6530
Buy Bonds_________________7670_________________________________2660
Buy commodity futures_______25700_______________________________26400
Buy Options________________16700_______________________________20600
a. Compute the coefficients of variations (Round the answers to 3 decimal places)
b. Which of the four investments should TIm choose?
c. Which one should Mike choose?
Explanation / Answer
a. coefficients of variations = Standard Deviation/Mean
Buy Stocks = 6530/9560 =0.68
Buy Bonds = 2660/7670 =0.34
Buy commodity futures = 26400/25700 = 1.03
Buy Options = 20600/16700 = 1.23
b. Tim should buy Bonds as it is has lowest coefficients of variation.
c. Mike Macho should buy options as it is has highest coefficients of variation.