Try another similar question, reattempt last question below, or select another q

Question

Try another similar question, reattempt last question below, or select another question. Suppose you wish to invest money safely and are trying to decide between stock options in two companies. The average rates of return are the same for both companies but, one company has a much larger standard deviation of its rates of return. a. Which company should you invest in? The company with the smaller standard deviation O The company with the larger standard deviation b. Why is this the better choice?

Explanation / Answer

Answer

Here by the problem,

I wish to invest money safely and trying to decide between stock options in two companies. The average rates of return arre the same for both companies ut , one company has a much larger standard deviation of its rates of return.

Now as standard deviation is the measure of variability which implies the latger the standard deviation, the higher the variability among the return values, and with that the higherthe uncertainty of having a fixed return (more or less). And it ensures the change of rates of return higher than the other compay (in both way ,like higher return as well as there is also a chance to have a lower return). So the risk gets higher.

So as the average return is same for both company then there is no justification to have higher risk.

So

i should invest in the company with smaller standard deviation.

Hence the answer..........

Thank you.................

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.