Jones’ Trophy Shop is considering an investment that has an expected return of 12% and a standard deviation of 10%

Given expected return = 12%

standard deviation = 10%

coefficent of variation = standard deviation/ expected return = 10%/12% =0.83

The investment's coefficient of variation = 0.83

Given that normal investments have CV of 1.5 to 2.0

CV is a ratio of volatility or risk to the absolute value or mean/4. The lower the CV the more is is the risk return tradeoff. that is lower CV implies lower risk and more return.

Here, Jones' investment CV =0.83 < 1.5, so, Jones' has lower risk when compared to normal investments.

We can change the required rate of return to higher values of return, because if required rate of return is increased, the CV value will decrease, and risk also decreases.