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Coefficient of Variation as a measure of Risk

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13/13. Mr. Sam Golff desires to invest a portion of his assets in rental property. He has narrowed his choices down to two apartment complexes, Palmer Heights and Crenshaw Village. After conferring with the present owners, Mr. Golff has developed the following estimates of the cash flows for these properties (see attached file).

Palmer Heights

Yearly After Tax cash flows Probability

10 0.1
15 0.2
30 0.4
45 0.2
50 0.1

Crenshaw Village

Yearly After Tax cash flows Probability

15 0.2
20 0.3
30 0.4
40 0.1

a. Find the expected cash flow from each apartment complex.
b. What is the coefficient of variation for each apartment complex?
c. Which apartment complex has more risk?

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Solution Summary

Answer to a question where Coefficient of Variation is calculated to measure risk.

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