The historical returns for two investments—A and B— are summarized in the following table for the...
The historical returns for two investments—A and B— are summarized in the following table for the period 2013 to 2017,
|
A |
B |
||||
|
Year |
Rate of Return |
||||
|
2013 |
22.322.3% |
12.412.4% |
|||
|
2014 |
7.27.2% |
14.514.5% |
|||
|
2015 |
14.114.1% |
17.817.8% |
|||
|
2016 |
28.628.6% |
18.118.1% |
|||
|
2017 |
10.310.3% |
19.719.7% |
|||
|
Average |
16.516.5% |
16.516.5% |
|||
. Use the data to answer the questions that follow.
a. On the basis of a review of the return data, which investment appears to be more risky? Why?
b. Calculate the standard deviation for each investment's returns.
c. On the basis of your calculations in part b,
which investment is more risky? Compare this conclusion to your observation in part a.
Homework Answers
a) As we can see that for "A" the returns vary between 7.2% to
28.6% and for "b" it varies between 12.4% and 19.7% so we can say
that investment A is more riskier than investment B since its
returns fluctuate widely than B
b)std=square root( sum of individual return-mean return)^2)/(n-1)
std of A=8.81% and std of B=2.97%
c)we can say that standard deviation of A is higher so it is more risky. so what we found in a and c both are same and saying investment A is more risky
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