Let us consider two alternative portfolios, A and B, having uncertain rates of return. The rate of r
Question: Let us consider two alternative portfolios, A and B, having uncertain rates of return. The rate of returns of the two portfolios are normally distributed with means µA and µB , and standard deviations σA and σB , which are given in the following table:
| Portfolios | µ | σ |
| A | 10.4 | 1.2 |
| B | 13.3 | 4.2 |
a) Calculate the coefficient of variation for portfolios A and B. Compare the coefficient and comment on which portfolio you would invest on?
b) Which of the two investments has a higher probability of yielding a rate of return larger than 10%
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