Lyndsay80 Lyndsay80

14-02-2020
Business

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Donna 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. Perfect Plungers Plus: Standard deviation of stock prices =$9.87 The Azure Travel Company: Standard deviation of stock prices =$1.12 Based on the data and assuming these trends continue, which company would give Donna a stable long-term investment?

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kolajero8 kolajero8

14-02-2020

Answer:

The Azure Travel Company would give Donna a stable long-term investment

Explanation:

In finance, standard deviation (SD) is used to measure the level of risk of an investment. The purpose of SD is to know the market volatility or variability of an investment from its average market price when the SD is applied to the annual rate of return of that particular investment.

The higher the standard deviation, that is when there is a wild movement of prices of an investment, the investment will be risky.

From the question, Perfect Plungers Plus the standard deviation of stock prices of Perfect Plungers Plus which is $9.87 is higher than the standard deviation of stock prices of Azure Travel Company which is $1.12.

This implies that the stock of Perfect Plungers Plus is riskier and more volatile than the stock of the Azure Travel Company. Therefore, the Azure Travel Company would give Donna a stable long-term investment.

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