Tim Trepid is highly risk-averse while Mike Macho actually enjoys taking a risk.

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.

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