Question

Charles Schwab employ certified financial advisors to evaluate the SC Mutual fund (ticker symbol: SC).

1. Calculate the expected return for this company.
2. Suppose the standard deviation for this fund is 15%. Charles Schwab will only purchase SC Mutual Fund’s with a coefficient of variation (CV) between 0.5 and 1.2. Any CV above 1.2 is deemed too risky. Will Charles Schwab purchase this fund? Explain.
   

State of the	Probability of
Economy	This State Occurring	SC
Boom	0.2	30%
Normal	0.6	10%
Recession	0.2	−5%

Answer 1

Cofficient of variation shows Risk for every one percent of return from the stock/fund.