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Martha is looking into investing a portion of her recent bonus into the stock market. While researching different companies, she discovers the following standard deviations of one year of daily stock closing prices.
Eye Remember Enterprises:
Standard deviation of stock prices
= $1.25 = $1.25
The Azure Travel Company:
Standard deviation of stock prices
= $9.73 = $9.73
Based on the data and assuming these trends continue, which company would give Martha a stable long-term investment?
A. The Azure Travel Company; the larger standard deviation indicates that The Azure Travel Company has less variability in its closing prices than Eye Remember Enterprises.
B. Eye Remember Enterprises; the smaller standard deviation indicates that Eye Remember Enterprises has less variability in its closing prices than The Azure Travel Company.
C. Eye Remember Enterprises; the smaller standard deviation indicates that Eye Remember Enterprises has a greater mean closing price than The Azure Travel Company.
D. The Azure Travel Company; the larger standard deviation indicates that The Azure Travel Company has a greater mean closing price than Eye Remember Enterprises.

Sagot :

Anthougoidn

Answer:

Based on the data and assuming these trends continue, the company that would give Martha a stable long-term investment is:

B. Eye Remember Enterprises; the smaller standard deviation indicates that Eye Remember Enterprises has less variability in its closing prices than The Azure Travel Company.

Step-by-step explanation:

The result shows that the greater the standard deviation of the stock price of the Azure Travel Company than that of Eye Remember Enterprises, the greater the variance between each stock's price and their mean closing prices.  This implies a larger price range in the stock of the Azure Travel Company than it is the case with the Eye Remember Enterprises.  It is noteworthy that a volatile stock has a high standard deviation, while the standard deviation of a stable blue chip stock is usually rather low.

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