Over the past 10 years, the return on Stock A has averaged 8.4% with a standard deviation of 2.1%. The return on Stock has averaged 3.6% with a standard deviation of 0.9%. Which of the following statements is true?
Select one:
a. Unable to tell with the given information.
b. Both stocks exhibit the same relative variation.
c. Stock B has smaller relative variation than Stock A.
d. Stock A has smaller relative variation than Stock B.
Answers
Given : Stock A has averaged 8.4% with a standard deviation of 2.1%.
The return on Stock has averaged 3.6% with a standard deviation of 0.9%.
To Find : Which of the following statements is true?
a. Unable to tell with the given information.
b. Both stocks exhibit the same relative variation.
c. Stock B has smaller relative variation than Stock A.
d. Stock A has smaller relative variation than Stock B.
Solution:
coefficient of variation = (σ / Mean ) *100
Stock A :
Mean = 8.4 %
SD = 2.1 %
CV = ( 2.1/8.4) * 100 = 25 %
Stock B :
Mean = 3.6 %
SD = 0.9 %
CV = ( 0.9/3.6) * 100 = 25 %
coefficient of variation is same for both stocks
Hence Both stocks exhibit the same relative variation.
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