Question

Mr.Prithviraj wants to invest Rs.10000 in on or two companies A or B. Average return in A year from a company A is Rs.16000 with a standard deviation of Rs.125, While in company B The average return in a year is Rs.20000 with a standard deviation of Rs.200. Which company will you recommend to Mr.Prithviraj for investment? Justify your answer

Answer 1

Answer:

Correct option is

A

Rs.20,000

Let the second amount =x

⇒10012000×10×1+100x×20×1=100(12000+x)×14×1

⇒100120000+10020x=100168000+14x

⇒120000+20x=168000+14x

⇒20x−14x=168000−120000

⇒6x=48000

⇒x=8000

Hence total amount invested=12000+8000=20000Rs.

Answer 2

Given,

Amount to be invested Rs.$10,000$

The standard deviation of A company is Rs. $125$

The mean return is Rs. $16,000$

The standard deviation of B company is Rs.$200$

The mean return is Rs. $20,000$

To find,

Which company is better for investment

Solution,

The correct answer to this given question is Company B.

Co-efficient of Variation of Company A = $\frac{Mean Return}{Standard Deviation}$

                                                          = $\frac{16000}{125}$

                                                          = $128$

Co-efficient of Variation of Company B = $\frac{Mean Return}{Standard Deviation}$

                                                         = $\frac{20,000}{200}$

                                                          = $100$

Since the coefficient of variation is less in the case of company B., It means that the deviation from the mean return or average return that the company is making is very little as compared to that of company A, Where the coefficient of variation is $128$ and the deviation from the mean return is More

So in the case of company A, the stability of returns is less than that of company B.

Also since the risk factor is one of the main considerations in case of investment, deciding on company B would be favorable

Therefore, the correct answer will be Company B