Concept explainers
To find: The better investment of
Answer to Problem 5GP
The investment should be done in Fund C.
Explanation of Solution
The expected value of Fund C is calculated as:
The expected value of Fund D is calculated as:
The standard deviation of Fund C is calculated as:
Profit | |||
So the standard deviation of Fund C is as:
The standard deviation of Fund D is calculated as:
Profit | |||
So the standard deviation of Fund C is as:
While the expected value of fund D is more than the expected value of Fund C, the standard deviation of Fund D is almost twice the standard deviation of Fund C. This means the expected value for Fund D will have about twice the variability than the Fund C and will be riskier with a greater chances of gains and losses.
Therefore the investment should be done in Fund C.
Chapter 11 Solutions
Glencoe Algebra 2 Student Edition C2014
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