1. For each company A. Deterring the mean and standard deviation of the returns. B. Calculate the coefficient of variation. C. Determine which company appears to be more volatile with respect to its risk. D. Identify the company with which you would choose to invest.
Part a:

Year | Company A Return | Company B Return | Average Market Return | Company A Deviation | Company A Deviation Squared | Company B Deviation | Company B Deviation Squared | 1985 | 5.0% | 4.0% | 2.0% | 3.0% | 0.1% | 2.0% | 0.0% | 1986 | 4.0% | -8.0% | 6.0% | -2.0% | 0.0% | -14.0% | 2.0% | 1987 | 3.0% | 2.0% | 7.0% | -4.0% | 0.2% | -5.0% | 0.3% | 1988 | 4.0% | 5.0% | 8.0% | -4.0% | 0.2% | -3.0% | 0.1% | 1989 | 8.0% | 3.0% | 9.0% | -1.0% | 0.0% | -6.0% | 0.4% | 1990 | 5.0% | 4.0% | 10.0% | -5.0% | 0.3% | -6.0% | 0.4% | 1991 | 4.0% | 1.0% | 11.0% | -7.0% | 0.5% | -10.0% | 1.0% | 1992 | 4.0% | 8.0% | 10.0% | -6.0% | 0.4% | -2.0% | 0.0% | 1993 | 4.0% | 9.0% | 9.0% | -5.0% | 0.3% | 0.0% | 0.0% | 1994 | 7.0% | 10.0% | 8.0% | -1.0% | 0.0% | 2.0% | 0.0% | 1995 | 8.0% | -2.0% | 7.0% | 1.0% | 0.0% | -9.0% | 0.8% | 1996 | 9.0% | 7.0% | 6.0% | 3.0% | 0.1% | 1.0% | 0.0% | 1997 | 10.0% | 5.0% | 5.0% | 5.0% | 0.3% | 0.0% | 0.0% | 1998 | 7.0% | 4.0% | 6.0% | 1.0% | 0.0% | -2.0% | 0.0% | 1999 | -4.0% | 2.0% | 7.0% | -11.0% | 1.2% | -5.0% | 0.3% | 2000 | -5.0% | 11.0% | 8.0% | -13.0% | 1.7% | 3.0% | 0.1% | Average | 4.6% | 4.1% | | | 5.1% | | 5.3% | Std Dev | 4.1% | 4.7% | | | | | |
Company A: Average return: 4.6% standard deviation: 4.1%
Company B: Average return: 4.1% standard deviation 4.7%
Part B:
Recall that the coefficient of variation is calculated by
Standard deviation/expected return
Company A: 4.1/4.6=0.89
Company B: 4.7/4.1=1.15
Part C:
Company B appears to be more volatile with respect to risk given that its CV is higher than