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  • What If ?: - With Machine (Y)

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    Carlos Andre Payares Luna
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    The document compares two investment options X and Y. Option X has an expected return (EX) of $30,000 and standard deviation (SX) of $10,000, while Option Y has an expected return (EY) of $34,000 and standard deviation (SY) of $13,000. It calculates the coefficient of variation for each option as a measure of risk relative to return, with Y having a higher coefficient of variation than X. It concludes that Option X is less risky per unit of return than Option Y and recommends not leasing the machine associated with Option Y.

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    2.13 Coefficient_of_Variation

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    The document compares two investment options X and Y. Option X has an expected return (EX) of $30,000 and standard deviation (SX) of $10,000, while Option Y has an expected return (EY) of $34,000 and standard deviation (SY) of $13,000. It calculates the coefficient of variation for each option as a measure of risk relative to return, with Y having a higher coefficient of variation than X. It concludes that Option X is less risky per unit of return than Option Y and recommends not leasing the machine associated with Option Y.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    8 views4 pages

    What If ?: - With Machine (Y)

    Uploaded by

    Carlos Andre Payares Luna
    The document compares two investment options X and Y. Option X has an expected return (EX) of $30,000 and standard deviation (SX) of $10,000, while Option Y has an expected return (EY) of $34,000 and standard deviation (SY) of $13,000. It calculates the coefficient of variation for each option as a measure of risk relative to return, with Y having a higher coefficient of variation than X. It concludes that Option X is less risky per unit of return than Option Y and recommends not leasing the machine associated with Option Y.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 4

    What If…?

    𝑬 𝑿 = $𝟑𝟎, 𝟎𝟎𝟎 𝑬 𝒀 = $𝟑𝟒, 𝟎𝟎𝟎


    𝑺 𝑿 = $𝟏𝟎, 𝟎𝟎𝟎. 𝟎𝟎 𝑺 𝒀 = $𝟏𝟑, 𝟎𝟎𝟎

    • With Machine (Y)


    • Higher return, but higher risk????

    Bond Business School Data Analytics for Decision Making – Topic 2d 1


    Standardised Measure
    • Coefficient of variation
    𝜎 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛
    = =
    𝜇 𝑚𝑒𝑎𝑛

    • Variation relative to the mean


    • Risk relative to return

    Bond Business School Data Analytics for Decision Making – Topic 2d 2


    What If…?
    𝑬 𝑿 = $𝟑𝟎, 𝟎𝟎𝟎 𝑬 𝒀 = $𝟑𝟒, 𝟎𝟎𝟎
    𝑺 𝑿 = $𝟏𝟎, 𝟎𝟎𝟎 𝑺 𝒀 = $𝟏𝟑, 𝟎𝟎𝟎
    𝒄𝒗 𝑿 ≈ 𝟎. 𝟑𝟑 𝒄𝒗 𝒀 ≈ 𝟎. 𝟑𝟖𝟐

    • Do not lease machine


    • More return, but higher risk per unit
    of return

    Bond Business School Data Analytics for Decision Making – Topic 2d 3


    Summary
    • Compare both mean and standard
    deviation

    • Coefficient of variation can assist


    when no obvious decision
    𝜎 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛
    =
    𝜇 𝑚𝑒𝑎𝑛

    Bond Business School Data Analytics for Decision Making – Topic 2d 4

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