Possible outcomes for three investment alternatives and their probabilities of occurrence are given below Alternative 1 Alternative 2 Alternative 3 Outcomes Probability Outcomes Probability Outcomes Probability Acceptable 160 Successful 120 244 200 20 Rank the three alternatives in terms of risk from lowest to highest(compute the coefficient of variation Solution: Alternative 1 Alternative 2 Alternative 3 DⅹP=DP DⅹP=DP DⅹP=DP $502$10$903$27$804$32 80432 160580 200 100 120448 200240400140 D=$90 D=$147 D=$172 Standard Deviation alternative 1 D (D-D)(D-D D-D)P $50$90$-40 $1.600 $320 10 100 4 40 12090+30 900 $720 720=$2683=a by The MCopyright © 2005 by The McGraw-Hill Companies, Inc. S-483 13-4. Possible outcomes for three investment alternatives and their probabilities of occurrence are given below. Alternative 1 Alternative 2 Alternative 3 Outcomes Probability Outcomes Probability Outcomes Probability Failure 50 .2 90 .3 80 .4 Acceptable 80 .4 160 .5 200 .5 Successful 120 .4 200 .2 400 .1 Rank the three alternatives in terms of risk from lowest to highest (compute the coefficient of variation). Solution: Alternative 1 D x P = DP Alternative 2 D x P = DP Alternative 3 D x P = DP $ 50 .2 $10 80 .4 32 120 .4 48 D = $90 $ 90 .3 $ 27 160 .5 80 200 .2 40 D = $147 $ 80 .4 $ 32 200 .5 100 400 .1 40 D = $172 Standard Deviation Alternative 1 D D (D− D) 2 (D − D) P (D D) P 2 − $ 50 $90 $–40 $1,600 .2 $320 80 90 –10 100 .4 40 120 90 +30 900 .4 360 $720 720 = $26.83 =