Questions: Amy 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. Garden Statues Express: Standard deviation of stock prices = 9.65 Masterful Pocketwatches: Standard deviation of stock prices = 1.05 Based on the data and assuming these trends continue, which company would give Amy a stable long-term investment?

Solution Steps

To determine which company would give Amy a more stable long-term investment, we need to compare the standard deviations of the stock prices. A smaller standard deviation indicates less variability in the stock prices, which implies a more stable investment.

1. Compare the standard deviations of the two companies.
2. The company with the smaller standard deviation is considered to have less variability in its stock prices and thus is a more stable investment.

We are given the standard deviations of the stock prices for two companies:

• Garden Statues Express: \( \sigma = \$9.65 \)
• Masterful Pocketwatches: \( \sigma = \$1.05 \)

To determine which company offers a more stable long-term investment, we compare the standard deviations. A smaller standard deviation indicates less variability in the stock prices, which implies a more stable investment.

Since \( \sigma_{\text{Masterful Pocketwatches}} = \$1.05 \) is less than \( \sigma_{\text{Garden Statues Express}} = \$9.65 \), Masterful Pocketwatches has less variability in its stock prices.

Final Answer