Question

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. Masterful Pocket Watches: Standard deviation of stock prices =$9.73=$ 9.73 Perfect Plungers Plus: Standard deviation of stock prices =$1.07=$ 1.07 Based on the data and assuming these trends continue, which company would give Donna a stable long-term investment

Answer 1

Answer: d. Perfect Plungers Plus; the smaller standard deviation indicates that Perfect Plungers Plus has less variability in its closing prices than Masterful Pocket watches.

Step-by-step explanation:

Standard deviation measures volatility with a high standard deviation pointing to more volatility than less. Stocks with a high volatility are by definition, not very stable.

Masterful Pocket watches has a higher standard deviation than Perfect Plungers Plus which means that Perfect Plungers is more stable than Masterful Pocket watches when it comes to closing prices. Perfect Plus would therefore be the best option for providing a stable long-term investment based on this metric.