Final answer:
The stock fund with the highest risk is Stock Fund 1, which has a standard deviation of 19.10%. It also offers the highest expected return on average due to its high mean return of 29.00%. Stock Fund 2, with the lowest standard deviation of 15.30%, is considered the safest investment.
Step-by-step explanation:
The student is asking about evaluating the risk of stock funds based on their mean yearly returns and standard deviations. To determine which stock fund has the highest risk, we look at the standard deviation (SD) of the returns, as it measures the amount of variation or dispersion from the average.
A higher standard deviation indicates a wider range of possible outcomes, hence higher risk. To assess the expected value of each investment, we consider the mean returns, as it gives us an idea of what the investor might expect to earn on average.
Using this information:
- Stock Fund 1: Mean 29.00%, SD 19.10%
- Stock Fund 2: Mean 12.20%, SD 15.30%
- Stock Fund 3: Mean 17.10%, SD 18.50%
We can conclude that Stock Fund 1 has the highest risk due to its highest standard deviation. It also has the highest mean return, indicating the highest expected return on average.
This aligns with the concept that generally, higher risk is associated with the potential for higher return. In contrast, Stock Fund 2 has the lowest standard deviation, suggesting it is the safest investment among the three, with more predictable outcomes.