Analysis of annualized returns over the period 1991-2001 showed that prepaid tuition plans had a mean return of 6.3 percent with a standard deviation of 2.7 percent, while the Standard&Poor's 500 stock index had a mean return of 12.9 percent with a standard deviation of 15.8 percent, (a) Calculate and compare the coefficients of variation, (b) Why would we use a coefficient of variation? Why not just compare the standard deviations? (c) What do the data say about risk and return of these investments at that time? ( Data are from Mark C. Neath, "Section 529 Prepaid Tuition Plans: A Low Risk Investment with Surprising Applications," Journal of Financial Planning 15, no. 4 [April 2002], p. 94.)
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