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Thread: Stat question regarding avg return

  1. #1
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    Stat question regarding avg return

    Can someone please help me with the question below:

    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.

    Can you please tell if d 18.00 is the correct answer?

    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?
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  2. #2
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    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)
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  3. #3
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    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.
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  4. #4
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    Re: Stat question regarding avg return

    Quote Originally Posted by scorpio2017 View Post
    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 $\mu$.

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

    $C_v = \dfrac \sigma \mu$
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  5. #5
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    Re: Stat question regarding avg return

    Appreciate your help with this.
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