# Thread: Stat question regarding avg return

1. ## Stat question regarding avg return

Problem 2

A student is comparing stocks to invest in. The following are the stock returns (in dollars) in the last 10 months.
Monthly Returns

 Stock A Stock B 20.00 30.50 18.00 21.67 25.00 25.00 17.00 26.00 20.00 (20.00) 17.00 45.00 18.00 (25.00) 8.00 (8.20) 17.00 50.00 20.00 35.00

The average return of stock A is
Select one:
a. 4.30.
b. 23.72.
c. 17.00.
d. 18.00.
e. 25.00.

The student should invest in

Select one:
a. stock B because it has higher standard deviation.
b. stock B because it has a higher coefficient of variation.
c. stock A because it has a lower coefficient of variation.
d. stock A because it has lower returns.
e. stock B because it has higher returns.

I need help with this one, how can I tell what's the correct option?

2. ## Re: Stat question regarding avg return

18 is correct

stock B has a mean of just slightly below that of stock A with a coefficient of variation about 7 times that of stock A.

I'd go with stock A because of reason (c)

3. ## Re: Stat question regarding avg return

Thanks for checking and providing an answer for where student should invest.

Can you please show the calculations? I like to know why C is the best option in this case.

4. ## Re: Stat question regarding avg return

Originally Posted by scorpio2017
Thanks for checking and providing an answer for where student should invest.

Can you please show the calculations? I like to know why C is the best option in this case.
surely you know how to find the mean $\mu$.

$\sigma = \dfrac{1}{N} \displaystyle{\sum_{k=1}^N}~(x - \mu)^2$

$C_v = \dfrac \sigma \mu$