The return of two different stocks has the following distribution depending on the market conditions. To decide on which is the best investment for an investor who prefers the highest average return bu the lowest risk, which of the following would be the most appropriate analysis to perform?
$$\begin{array} { c c c l }
\hline \text { Market Condition } & \text { Probability } & \text { Return of StockA } & \text { Return of Stock B } \
\hline \text { Bull } & 0.4 & \$ 200 & - \$ 200 \
\text { Stable } & 0.3 & \$ 100 & \$ 150 \
\text { Bear } & 0.3 & - \$ 100 & \$ 400 \
\hline
\end{array}$$
A) compute the coefficient of variation
B) perform a two-way ANOVA
C) perform a multiple linear regression
D) set up the payoff table

Question

The return of two different stocks has the following distribution depending on the market conditions. To decide on which is the best investment for an investor who prefers the highest average return bu the lowest risk, which of the following would be the most appropriate analysis to perform?
$$\begin{array} { c c c l } 
\hline \text { Market Condition } & \text { Probability } & \text { Return of StockA } & \text { Return of Stock B } \
\hline \text { Bull } & 0.4 & \$ 200 & - \$ 200 \
\text { Stable } & 0.3 & \$ 100 & \$ 150 \
\text { Bear } & 0.3 & - \$ 100 & \$ 400 \
\hline
\end{array}$$
A) compute the coefficient of variation
B) perform a two-way ANOVA
C) perform a multiple linear regression
D) set up the payoff table

Quizplus · Accepted Answer

The coefficient of variation is a measure that allows investors to assess the risk (standard deviation) relative to the expected return (mean) of each stock, helping to identify which stock offers the highest return for the lowest risk.

The Return of Two Different Stocks Has the Following Distribution