Project C has an expected value of $500 and a standard deviation of 50. Project D has an expected value of $300 and a standard deviation of 10. Comment on the desirability of these projects
What will be an ideal response?
CVC = 50/500 = 0.10
CVD = 10/300 = 0.03
Project D has a lower coefficient of variation and thus is more desirable. Even though its expected value is lower, its lower standard deviation (and thus lower risk) makes up for this.
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