Standard deviation versus coefficient of variation as measures of risk Greengage, Inc., a successful nursery, is considering several expansion projects. All the alternatives promise to produce an acceptable return. Data on four possible projects appear in the following table: Project Expected return Range Standard deviation A 12.6% 5.7% 2.6% B 11.6% 6.2% 3.9% C 11.9% 5.9% 3.6% D 11.8% 6.1% 3.3% a. Which project is least risky, based on the range of possible outcomes? b. Which project has the lowest standard deviation? Explain why standard deviation may not be an entirely appropriate measure of risk for purpo
Standard deviation versus coefficient of variation as measures of risk Greengage, Inc., a successful nursery, is considering several expansion projects. All the alternatives promise to produce an acceptable return. Data on four possible projects appear in the following table: Project Expected return Range Standard deviation A 12.6% 5.7% 2.6% B 11.6% 6.2% 3.9% C 11.9% 5.9% 3.6% D 11.8% 6.1% 3.3% a. Which project is least risky, based on the range of possible outcomes? b. Which project has the lowest standard deviation? Explain why standard deviation may not be an entirely appropriate measure of risk for purpo
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Standard deviation versus coefficient of variation as measures of risk Greengage, Inc., a successful nursery, is considering several expansion projects. All the alternatives promise to produce an acceptable return. Data on four possible projects appear in the following table:
|
Project
|
Expected
return
|
Range
|
Standard
deviation
|
|
A
|
12.6%
|
5.7%
|
2.6%
|
|
B
|
11.6%
|
6.2%
|
3.9%
|
|
C
|
11.9%
|
5.9%
|
3.6%
|
|
D
|
11.8%
|
6.1%
|
3.3%
|
a. Which project is least risky, based on the range of possible outcomes?
b. Which project has the lowest standard
deviation?
Explain why standard deviation may not be an entirely appropriate measure of risk for purposes of this comparison.c. Calculate the coefficient of variation for each project. Which project do you think Greengage's owners should choose?
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